DRAGONCARE CANADA Ltd
Quality
•Safety
•Efficacy
•Research
•Brand
Service
Health
•TCM Clinics
•Longevity
•Consultancy
•Immunity
•Helplines
•Energy
A Business Plan By
Manoj Karia
mkaria.mba2006@ivey.ca, 519-434-3742
Smita Yadav
519-474-7648
syadav.mba2006@ivey.ca,
Saurav Singhal
519-857-3532
ssinghal.mba2006@ivey.ca,
Ashwat Yennagudde
ayennagudde.mba2006@ivey.ca, 519-433-7463
of the Richard Ivey School of Business
Index
Topic
Pages

Executive Summary
2-7

Comprehensive Business Plan
7-26

Canada – Investment Climate
7

Canada as a TCM Market – Macroeconomic Analysis
7

The Canadian NHP Industry
8

Canada as a TCM Market For a New Entrant
8

Chinese Herbal Products – Competitive Environment
9

Entry Strategy
9

Value Proposition & Positioning
10

Marketing Strategy
10

Market Segmentation & Target Segment Identification
11

Marketing Plan
13

Organizational Plan & Management Structure
17

Operational Strategy
20

Financial Analysis
24

Business Risks
26
1
EXECUTIVE SUMMARY
RECOMMENDATION
We recommend that DragonCare Ltd expand its footprint to Canada through a fully
owned subsidiary by the name of “DragonCare Canada Ltd”.
Awareness of alternative health medicine is increasing rapidly in Canada. The Canadian
Natural Health Products (NHP) industry (Market Size: $2620 million)1, of which the
herbal medicines have a 40% share (Market Size: $1048 million), is growing at 20%
annually2.
The Traditional Chinese Medicine (TCM) segment in particular is highly
fragmented with no major brand in the marketplace. Market share of none of the current
players exceeds 5%. In this respect, the market condition in Canada is similar to what
exists in DragonCare’s current markets and provides DragonCare a good opportunity to
create a niche for itself by building a brand on the strength of its scientific research
capabilities and experience of operating in such markets.
ROLL OUT STRATEGY
Jul – Dec 2011:
Jan 2006:
Mar – Oct 2009:
DragonCare Canada
goes operational.
Launch of “HealthCare
For Women” products
2
0
0
6
2
0
0
5
June 2005:
2
0
0
7
DragonCare goes east.
Starts operations in
Ontario.
The Store promotes and sells complete
line of DragonCare products
2
0
0
8
2
0
1
0
Oct 2007 - Jan 2008:
DragonCare Canada
registered and set up
in BC and Alberta.
DragonCare Canada sets up
a “Concept Store” in Vancouver.
DragonCare launches “HealthCare
for Children” products.
It leverage established customer
base of women to venture
into infant products.
DragonCare sets up two – three
TCM clinics in Vancouver.
2
0
0
9
Jan – Dec 2010 :
DragonCare introduces
more products in a phased
manner to support its
“Flagship” women’s
products.
Product line includes
soups, cereals, etc.
2
0
1
1
2
0
1
2
20112011-2012:
DragonCare sets up
Manufacturing unit in
Vancouver.
Plant to cater to Canadian
And US markets.
DragonCare Canada should employ a phased approach in introducing its products,
its geographic expansion in Canada and introduction of its full value proposition to the
Canadian customers.
Trade Facilitation Office Canada – Pharmaceuticals and Natural Health Products Market Research 2003.
Canada Business Service Centre www.cbsc.org
2
Same as above. TFOC www.tfoc.ca
1
2
DragonCare should enter Canada with two patented women’s healthcare products
preferably for nutritional benefits & immunity development which have the highest
demand in Canada3. The strategy is to develop these products as DragonCare’s
“Flagship” products in Canada. Introduction of other products will be after the
“DragonCare Brand” is established. Further, DragonCare should initially limit itself to
British Columbia and Alberta since these are the biggest markets for TCM products (51%
of people in BC & Alberta use NHPs & TCM)4. BC also has a high Chinese immigrant
population (380,000 Chinese immigrants i.e. 31% of Chinese immigrants in Canada are
in Vancouver, BC)5, thereby providing an attractive easy-to-tap market for DragonCare.
After 3 years of operations in Canada, DragonCare should introduce services in the form
of TCM clinics, thereby completing its value proposition.
Dragoncare, with its limited resources should focus on growing primarily in the
Canadian market. However, if a few years down the road, DragonCare decides to enter
the US market, it should consider setting up a manufacturing unit in Canada to take
advantage of the North American Free Trade Agreement and use Canada as a
manufacturing base for North America. However, we do not recommend setting up a
manufacturing unit in Canada to target the Canadian market because of higher risk
associated with high initial investment and also because the production costs are lower in
Malaysia and Singapore.
OPERATING MODEL
DragonCare Canada should source products from its manufacturing facilities in
Singapore and Malaysia, and use Canadian pharma-products distributors to reach the
pharma-retailers and ultimately the end users.
Information Flow
DragonCare Canada
TCM Practitioners
Material Flow
Retail Pharmacies
Canadian Distributor
Manufacturing Sites
in Singapore/Malaysia
Retail Pharmacies
Shipping
Customers
- Warehousing & Distribution
By 3rd Party
Retail Pharmacies
3
NDMAC. www.ndmac.ca. Exhibit5.
NDMAC. www.ndmac.ca Exhibit 4.
5
Statistics Canada. www.statcan.ca. Exhibit 15.
4
3
MARKET SIZE ANALYSIS & MARKETING PLAN
Product
DragonCare should enter the Canadian market with only the TCM product line since
DragonCare can differentiate itself best on the basis of its research and scientific
capabilities (which are more applicable to this line of patentable products) and because
there are more opportunities for market penetration in this segment due to less
competition. DragonCare should introduce two patented women’s healthcare products for
nutritional benefits & immunity development (55% of consumers use NHPs for this
reason)6. The primary reason for this recommendation is that women form the biggest
TCM market segment7 (Women’s Herbal Medicine Market Size: $ 535 million. Growth
Rate: 20%).This limited introduction approach will allow DragonCare to strategically
allocate its limited resources in building the brand effectively. Exhibit 13 & 14 show
market size calculations and projected growths.
Price
We suggest that DragonCare adopt a premium pricing strategy (inline with its brand
image) and price its products at $32-$35/bottle (Retail price in Canadian $).Competitor’s
products are in the price range of $21-$35/bottle8.
Promotion
DragonCare will use a multi-pronged approach for establishing its brand. It will have a
budget of $2.5 million for promotions in 2006.Advertising in health books and buzz
marketing techniques will be the main promotion vehicles. (Market research indicates
health books (18%) and family/friend referrals (36%) as being top influencers in buying
decision for NHPs)9.
Advertising: Using health magazines for women, cable TV, radio, newspaper, bill boards,
and internet. The focus of the advertisements will be product benefits, DragonCare’s
research labs and Singapore - a clean & progressive city. This approach will help build
consumer confidence on the quality of health products imported to Canada.
Sales Promotions: Includes free samples, discount coupons, bundling products into value
packs, and bundling DragonCare goods (key chains, coffee mugs etc).
6
NDMAC. www.ndmac.ca Exhibit 5.
NDMAC www.ndmac.ca Exhibit 3.
8
Competitor Websites – www.gfcherbs.com, www.nl-supplies.com,www.medicinechinese.com
9
NDMAC. www.ndmac.ca. Exhibit 8.
7
4
In-Store Promotions: Includes Trade Discounts and special In-Store campaigns.
Public Relationships: Includes participation in Trade Shows, sponsorship of social causes
targeted at women.
Direct Mail Campaigns: These campaigns will be used for selectively reaching potential
long term customers.
Blogs: DragonCare will also initiate/participate in discussions on herbal products in blog
sites like www.blogscanada.com where its customers can share their experiences on the
efficacy of DragonCare’s products. This channel, we believe, will prove to be effective
for buzz marketing.
Distribution
There are three main distribution channels for Dragon care in Canada: health food stores,
pharmacies and TCM practitioners. DragonCare will reach the health food stores and
pharmacies through strategic alliances with two pharma-product distributors (one each in
BC and Alberta). Online sales are not recommended based on ROI calculations.
FINANCIAL ANALYSIS
(Note: All figures are in ‘000s SGD)
DragonCare Canada Pvt Ltd Forecasted Income Statements
Yearly Sales Growth
upto 2010
75%
Sales Growth in 2010
35%
% of Sales
100%
6%
2005E
0.0
0.0
2006E
5000.0
300.0
2007E
8750.0
525.0
2008E
15312.5
918.8
2009E
26796.9
1607.8
2010E
36175.8
2170.5
Gross Margin
Transportation Cost
SGA
EBITDA
94%
4%
80%
10%
0.0
0.0
800.0
-800.0
4700.0
200.0
5000.0
-500.0
8225.0
350.0
7000.0
875.0
14393.8
612.5
12250.0
1531.3
25189.1
1071.9
21437.5
2679.7
34005.2
1447.0
28940.6
3617.6
Depreciation
EBIT
4%
0.0
-800.0
200.0
-700.0
350.0
525.0
612.5
918.8
1071.9
1607.8
1447.0
2170.5
Sales
COGS
Interest
0.0
108.8
190.3
333.0
582.8
786.8
PBT & Minority Interests
-800.0
-808.8
334.7
585.7
1025.0
1383.7
Minority Interests
-153.6
-155.3
64.3
112.5
196.8
265.7
PBT
-646.4
-653.5
270.4
473.2
828.2
1118.0
Taxes Payable on Profit
-245.6
-248.3
102.8
179.8
314.7
424.9
Tax Cover from previous Year
0.0
245.6
494.0
391.2
211.4
0.0
Actual Taxes Paid
0.0
0.0
0.0
0.0
103.4
424.9
Tax Cover Carried Over
245.6
494.0
391.2
211.4
0.0
0.0
PAT
-400.8
-405.2
270.4
473.2
724.8
693.2
NOTE: 1) Sales are based on Dragoncare's price to retailers. Retailer margins are above this price.
2) Fixed Assets/Sales is assumed to remain at current level of 0.29 (It has been in the range of 0.3 for the past 4 years)
3) TCM products come under classification 3004.20.00.79 and no customs duty applies. Only PST applies which is levied on the customer.
Sources: http://www.cbsa-asfc.gc.ca/E/pub/cm/d10-14-30/d10-14-30-e.html & Departmental Consolidation of the CUSTOMS TARIFF 2005
Remarks & Assumptions
Sales Price is adjusted to accommodate
part of transportation cost.
$2.5 million marketing expense in 2006
4% of Sales based on assumption that
Depex is 10% of Fixed Assets
Interest Rate 7.5%. Prime Lending Rates
of Most Singapore Banks is around 5.5%
19.2% Min. Interest. (From 2004
Taxes =38% (Canadian)
5
Net Cash Flow Projections for Canadian Operations
2005E
2006E
2007E
2008E
2009E
2010 E
Net Cash Flow from Operations
-646.40
-1117.17
122.65
610.19
964.48
1460.57
Net Cash Flow in Investments
0.00
-1450.00
-1087.50
-1903.13
-3330.47
-2719.88
Cash Flow from Financing
0.00
1450.00
1087.50
1903.13
3330.47
2719.88
NET CASH FLOW
-646.40
-1117.17
122.65
610.19
964.48
1460.57
Note:Cash flow in investments in future years will be low due to slower average growth of around 5-10%.
Hence, cash flows from operations in future years will be steady and sufficient to cover any future investment requirements
Growth will slow down because DragonCare would have completed its geographic and product line expansions by end of 2010.
5- Year Return on Initial Investment: 14.43% (Refer Exhibit 33 for details)
Net Present Value of Project: 5.2 Million SGD (Refer Exhibits 32 & 33)
Initial Investment Required: $2.1 million in 2005-06.
Profitable in 2007. 7% of DragonCare Ltd’s net profits in 2010 will be from Canadian
operations. 14% of DragonCare Ltd’s sales in 2010 will be from Canadian operations.
Positive cash flows from operations in 2007.
Breakeven Sales Volume: $ 5.3 million/year in 2006 (Refer Exhibit 44 for details)
Breakeven Market Share: 4.2% (Refer Exhibit 44 for details)
Interest Coverage Ratio: Healthy (> 4 ) Refer Exhibit 40 for other ratios.
Refer Exhibits 28 to 44 for projected financial statements (Canadian operations and
Consolidated), ratios, cash flows, sensitivities and assumptions.
Source of Funds: DragonCare Ltd should secure long term loans from its current bank in
Singapore to fund capacity expansion in its Singapore/Malaysian facilities and its own
excess cash for funding initial working capital requirements. In later years the Canadian
division can source working capital requirements from Canadian banks.
Risks: a) High working capital requirements in future years to meet growth.
Mitigation steps – Supply chain efficiency improvement.
b) Foreign exchange risks. Risk level – Medium. Mitigation Steps – Hedging.
ORGANIZATION PLAN & MANAGEMENT STRUCTURE
DragonCare Canada’s Mission Statement:
“Caring for Humanity by providing the traditional route to a healthy life.”
Organization Structure:
Inline with the structure of DragonCare’s other subsidiaries, GM Canada will report to
VP-Sales & Retail. Since Marketing will be DragonCare Canada’s focus, the Marketing
Manager will report directly to GM Canada. A R&D Coordinator will act as a link
between Canadian Government and Dragoncare Ltd’s R&D headquarters for matters
regarding certification, product safety etc.
6
Group Chairman
Singapore Management
Managing Director
Direct Reporting
Functional Reporting
Chief Scientist
VP- Sales and Retail
Operations
VP- Finance
GM Canada
Finance
Manager
Materials/Logistics
Manager
Finance Dept
VP- Manufacturing
Canada Management
Marketing
Manager
H.R Manager
R&D Co-ordinator
Logistics Dept
Customer Relationship
Management Dept
Marketing Dept
COMPREHENSIVE BUSINESS PLAN
CANADA – INVESTMENT CLIMATE
Canada is a dynamic and competitive economy that has liberal and favorable policies for
establishing new businesses. Canada’s strong economic fundamentals and relative cost
advantages over other developed nations provide a first rate business environment.
Canada led the G-7 countries in terms of GDP growth (3.1%) in 2000-200310 and is
expected to remain a top performer in 2004-2006 (2.8%). Canadian locations compare
well internationally in terms of statutory corporate income tax rates. Firms in Canada
have growing income tax rate advantages over US firms. Elimination of capital tax is
expected to increase the tax advantage over US from the current 2.3% to 3.4% by 200811.
Exhibit 1 summarizes few of the advantages of Canada as an investment
destination. Canada leads the G7 Countries in terms of quality of life (highest index value
= 9.2), business environment, labor costs (lowest index value = 80) and cost of living
(lowest index value = 60).
CANADA AS A TCM MARKET – MACRO ECONOMIC ANALYSIS
The Political climate in Canada is well suited for investment. The bilateral discussions on
the Canadian Singapore Free Trade Agreement are ongoing since 2001. The approval of
CSFTA will lead to the elimination of all tariff and non-tariff measures between Canada
and Singapore and more efficient trade and customs procedures. The Canadian economy
10
11
KPMG Competitive Alternatives G7 2004 Edition. Invest in Canada. www.investincanada.gc.ca
KPMG Competitive Alternatives G7 2004 Edition. Invest in Canada. www.investincanada.gc.ca
7
is on an upswing with low unemployment rates, low interest rates, strong dollar value,
low inflation and high disposable incomes resulting in positive consumer behavior.
Increasing health consciousness and growing awareness of alternate healthcare products
especially TCM presents tremendous growth opportunities for Chinese herbal product
companies. Further, the presence of a large Chinese immigrant population also adds to
the attractiveness of Canada as a TCM market. High computer literacy has led to wide
spread usage of internet making this an attractive advertising channel. Hence, from a
macro economic perspective, Canada is a very attractive market for TCM products.
Refer Exhibit 2 for the Political, Economic, Social and Technological (PEST) Analysis.
THE NATURAL HEALTH PRODUCTS (NHP) INDUSTRY IN CANADA
Canadians are becoming increasingly willing to shoulder responsibility for their own
health. With this trend has come a new awareness of health products, therapies and
remedies derived from ancient sources of knowledge such as the Traditional Chinese
Medicines (TCM) have found increasing appeal in the contemporary Canadian Society12.
The Canadian NHP industry is a SG$ 2620 million industry growing at 20%
annually. The biggest markets for NHPs within Canada are the Western Canadian
provinces of British Columbia and Alberta. Women are the largest users of Natural
Health Products (49% of Canadian Women use NHPs) and a significant percentage of
Canadians spend over SG$ 39 monthly on these products. 55% of NHP consumers use
these products to develop immunity and for nutritional benefits.
Refer Exhibits 3 to 8 on the Canadian Natural Health Products Market.
CANADA AS A TCM MARKET FOR A NEW ENTRANT
The TCM industry (Herbal Medicine Market Size: $ 1048 million) in Canada is highly
fragmented with several small players vying for customer attention. The absence of
dominant players and major brands (no player has more than 5% market share) in such a
rapidly growing market and low barriers to entry, make Canada an attractive market for
DragonCare Ltd. Despite the threat of increased competition from new entrants, the
Canadian TCM market provides DragonCare an attractive growth avenue which it can tap
effectively by acting promptly and establishing a strong brand early on the basis of its
quality, scientifically developed products and aggressive marketing.
12
Health Canada. http://www.hc-sc.gc.ca
8
Exhibit 9 summarizes the attractiveness of the Canadian TCM market from the
perspective of a new entrant.
CHINESE HERBAL PRODUCTS MARKET - COMPETITIVE ENVIRONMENT
While the absence of a major brand in the market is to DragonCare’s advantage, it is
worth taking note that there are a large number of small players currently in the market.
Most of these are small companies/distributors (Sales < $1 million) that sell relatively
unprocessed products like ginseng roots, Chinese herbs (Example: Sumbu City Chinese
Herbs) etc. The bigger players are into selling more value added products similar to
DragonCare’s TCM product line. While a significant percentage of the Canadian players
are targeting their products at the Chinese/Asian immigrant population (their no frills
packaging with traditional names and low pricing indicate this), very few players are
targeting their products specifically at the Canadians. DragonCare can position itself to
bridge this gap and can develop its products and promotions to specifically target
westerners. The competitor to take note of for DragonCare is Kaiser Pharmaceutical Ltd,
a Taiwanese company, which co-ordinates its business through a sales office in North
America. This company too has a research oriented focus and markets its products on the
same basis13. It operates in Canada through two distributors (one in Vancouver, BC and
one in Winnipeg, Ontario) and has made a good name for its products in a short time.
However, this company sells its products only to TCM Practitioners (since it currently
focuses on the US market, it does not have the resources in Canada to take the retail
route) and DragonCare can avoid direct conflict with this company by opting for the
retail route. A few other players such as Herbal Comfort Products and A World of Good
Health sell products using the online channel14.
ENTRY STRATEGY
We recommend that DragonCare Ltd enter the Canadian market through a wholly owned
subsidiary which sources its products from its manufacturing units in Singapore/
Malaysia.
DragonCare Ltd has other avenues of entry into Canada - a joint venture (JV), an
acquisition, a greenfield project (with a new manufacturing set up in Canada) are a few
such options. While a joint venture and acquisition may help DragonCare leverage the
13
14
http://www.kaiser.com.tw/
Chinese Medicine Suppliers of Canada. www.medicinechinese.com
9
knowledge/resources of partners/existing players, the absence of a large player in the
Canadian market with a good fit for DragonCare nullifies the potential benefits that these
avenues may have offered.
Further, evaluating the options based on the criteria of retaining control,
maximizing profits and minimizing the risks of starting a new business in Canada, we
find the option of setting up a subsidiary without any manufacturing facilities in Canada
as the best alternative. Exhibit 10 shows the Evaluation of the various Entry Avenues
available to DragonCare.
DRAGONCARE CANADA’S VALUE PROPOSITION & BRAND POSITIONING
DragonCare Canada will seek to become an end-to end TCM provider to Canadian
customers. In order to achieve this goal it will have a 3-Pronged Value Proposition –
Quality, Health and Services. DragonCare Canada’s Value proposition will be
represented by the three prongs of the Canadian Maple Leaf. Exhibit 11 shows
DragonCare’s Value Proposition Model.
We believe that DragonCare Canada can differentiate itself from the current
players in the Canadian TCM Market on the basis of two main factors – a) High Brand
Value and b) Scientifically Researched & Developed Products. This will also allow
DragonCare to pursue the premium pricing approach which has been a major reason for
its strong past financial performance. Exhibit 12 shows DragonCare Canada’s Product
Positioning Map
MARKETING STRATEGY
In order to strategically use its limited resources and to minimize risk, DragonCare
Canada should use a concentrated marketing approach and limit its efforts to Western
Canada and niche segments to build a strong brand image and gain a firm foothold in the
Canadian market. DragonCare should enter the Canadian market with only the TCM
product line since DragonCare can differentiate itself best on the basis of its research and
scientific capabilities (which are more applicable to this line of patentable products) and
because the Canadian market offers more opportunities in this segment. Further,
DragonCare should initially restrict itself to a very limited number of products within the
TCM category. Once the DragonCare brand is established, it can launch new products
and increase the range of offerings. After DragonCare establishes itself as a market leader
in Western Canada it can leverage on its brand image and target the eastern Canadian
10
markets. DragonCare should then look at setting up TCM clinics under its brand name in
order to complete its promise of becoming an end-to-end TCM provider.
To reduce risk and increase the chances of a successful product launch, we
recommend that Dragon care does simulated market testing followed by controlled
market testing to ensure that its products are well accepted by the target segment during
the actual launch. Simulated testing involves observing the purchasing behavior of a
focus group in a test environment containing various TCM products including those of
competitors followed by a product satisfaction survey a few weeks later. As part of
controlled market testing Dragon care will launch the product in a few locations within
Vancouver to gauge the consumer reaction to its products and then accordingly modify
its strategy during the actual launch of the product.
DragonCare will have to adapt its marketing strategy to suit the needs of the target
Canadian market – “Think Globally Act Locally”. This may result in higher initial costs
but will help secure a larger market share and greater return. To differentiate itself from
competitors who are primarily targeting the Chinese immigrants, DragonCare should
“Westernize” the names of its products and its packaging, communication, advertising
and promotion activities to target the affluent western Canadian women. The detailed
marketing plan is explained later in the report.
CANADIAN TCM MARKET SEGMENTATION & IDENTIFYING THE TARGET SEGMENT
We used the following criteria to segment the Canadian TCM Market and identify the
Target Segment for DragonCare Canada.

Measurability: The size, purchasing power and profile of the segment(s) should be
quantifiable objectively.

Accessibility: The market segment(s) should have easy accessibility.

Substantiality: The market segment(s) should be large and profitable enough to
serve.

Actionability: Effective programs can be designed to attract and serve the
segment(s).

Growth: The segment(s) should be undergoing rapid growth.

Structural Attractiveness: Avoid segments that have many strong and aggressive
competitors.
11

Company Objectives and Resources: DragonCare’s most profitable products are
in the patented TCM group for children and women.
Based on these criteria we identified the middle to high income women in western
Canada as our immediate target segment. This segment has a market size of $213 million
and is growing at an annual rate of 20%15. Refer Exhibit 13 for market size calculations.
Explanation of the Segmentation Process:
Level 0 Segmentation: Users/Non-users of herbal products
Level 1 Segmentation: Income
The population of Canada using herbal products was divided into the rich and upper
middle class users and others. The use of NHPs in Canada does not necessarily depend on
income levels16. However, only the rich and upper middle class Canadians were
considered as the target market for DragonCare since it is going to position itself as a
premium brand.
Level 2 Segmentation: Gender
A substantially higher proportion of Canadian women (49%) than men (37%) 17are found
to use herbal products and are thus identified as the primary target market.
Level 3 Segmentation: Age
Women below the age of 15 are categorized as children and not included as the primary
target segment as their health considerations differ from those of older women.
Level 4 Segmentation: Geography
Western Canada, especially British Columbia and Alberta, were chosen as the geographic
target markets as the likelihood of taking natural health care products in Canada increases
from east to west with BC and Alberta jointly ranked highest at 51%. (Exhibit 5)
The low cost advantage, the high quality of life, a large number of Asian/Chinese
immigrants in western Canada (an existing customer base for TCM products) and the
ease of imports from Asia further tilted the balance in favor of Western Canada as the
primary target market for Dragon Care. Refer Exhibit 15 for Asian Immigrant
Population Distribution in British Columbia.
TFOC – Pharmaceuticals and Natural Health Products Market Research 2003 www.tfoc.ca Exhibit 3
NDMAC. www.ndmac.ca Exhibit 7
17
NDMAC www.ndmac.ca Exhibit 3
15
16
12
After two years, DragonCare should extend its product line to include healthcare
products for children (Market size of $30 million. Refer Exhibit 14 for calculations) since
the current target segment, women, are the primary decision makers for the purchase of
these products.
MARKETING PLAN
Product
DragonCare should introduce two patented women’s healthcare products for nutritional
benefits & immunity development (55% of consumers use NHPs for this reason)18 and
establish these as DragonCare Canada’s “Flagship Products”. The limited products
approach will enable DragonCare to stay focused and strategically allocate its limited
business resources to be more effective in its brand building activities.
The packaging should reflect the premium positioning and value proposition of
the product. The packaging and labeling must meet the requirements of the Consumer
Packaging and Labeling Act, Canada. Packaging must ensure that the medicines are not
affected by temperature, light, transportation and storage. Polyethylene liners may be heat
sealed to give an air-tight closure. While vacuum packing is not generally used, it is
effective in preserving quality and compresses the product package into a smaller volume
which can lead to savings in freight costs. Packets for palletization are suitable since they
reduce handling and hence damage to the product. There should be consistency of
packaging and package sizes, an orderly loading of containers, shipping marks on the
master pack and article numbers on the inner packs. Shipping containers must be clearly
stamped or stenciled on a minimum of two sides with all code markings, and in
waterproof ink. The packages should be sturdy enough for multiple handling. Reusable
rather than disposable packaging addresses environmental concerns of Canada. Proper
packaging is important since sub-standard packaging may damage the product and create
problems for the marketing the goods and conflict with the image of “high quality”19.
An attractive green bottle with a label of the type indicated in Exhibit 16 will
successfully convey DragonCare’s brand message of health & quality. The label must
conform to the Canadian standards as recommended in the Consumer Packaging and
Labeling Act (Dual language labeling .i.e. in English and French being the prime
18
19
NDMAC. www.ndmac.ca Exhibit 5.
TFOC – Pharmaceuticals & Natural Health Products Market research report 2003. www.tfoc.ca
13
requirement) and must have a customer support/helpline number as well as the Canadian
website address. The product must also be accompanied by a printed leaflet which
provides information about dosage, indications, warnings, expiry date and other relevant
information. Under the laws of Canada, drugs which are displayed for sale to the public
cannot be imported or sold unless they are contained in a security package. The security
information must be illustrated on either the outer or inner label20.
Price
Since DragonCare will offer a branded, high quality product, we suggest that it adopt a
premium pricing strategy and price its products at around $32- $35/bottle (Retail Price in
Canadian $). For the twin pack, the price should be $55-$60/pack. Current prices in the
Canadian market for similar TCM products are around $21-35/bottle21.
The rationale for the pricing strategy is “Value Based Pricing” based on an
analysis of purchasing power of the target segment and the current customer spending on
herbal products. Concerns on health and need for good quality are on the rise and
correspondingly the willingness to spend on alternative medicine is increasing. Moreover,
allopathic health expenditures are covered by government so more disposable income for
alternate health care products is available for customers.
Further, a high price will align with DragonCare’s positioning of a premium brand and
have a connotation of high quality associated with it. Also, as per market research
studies, demand is relatively less elastic for medicinal products. Hence, the higher than
average prices of DragonCare’s products should not be a concern.
Promotion
DragonCare will use a multi-pronged approach (combination of push and pull
promotional strategies) for establishing its brand and it will have a budget of $2.5 million
for promotions in 2006 (Refer Exhibit 17 for promotion budget allocation details). The
major factors that affect the decision of Canadian customers in the purchase of herbal
products are family/friend (36%), health books (18%) and medical practitioners (9%)22.
Hence, it is essential to use the promotion budget in those vehicles which can help
generate curiosity, awareness and a positive word of mouth in the market. This will
20
Food & Drugs Act, Canada. Chapter F-17
Competitor websites. www.gfcherbs.com www.medicinechinese.com www.nl-supplies.com
22
NDMAC. www.ndmac.ca Exhibit 9.
21
14
ensure that once DragonCare has cleared the barrier of developing an initial customer
base set up, it will have a self-sustained advertising medium. DragonCare’s public
relations activities, advertising, sales promotions, in-store promotions and direct mailing
will all be designed with this in mind.
Pull Strategies:
Advertising: Dragon care should focus its advertising on its product’s benefits, its
scientific research labs and on Singapore - a clean & progressive city. This will help build
consumer confidence on the high quality of its imported products. It should also associate
itself with health and fitness experts and sports icons to further augment its brand image.
Dragon Care should use multiple media vehicles to reach the target customers. It should
run ads on Cable TV which is a relatively inexpensive medium for running television ads
as compared to other channels. Advertising in women health magazines such as
Chatelaine, Canadian Living and Homemaker’s should be a primary means of reaching
the health conscious affluent women of BC and Alberta. Radio ads run during morning
and evening primetime are very reasonably priced and can prove to be a very important
tool for brand building. Billboards placed at strategic locations such as downtown area,
near women’s health clubs, near pharmacies etc are an effective and enduring way of
reaching the target customers. DragonCare should have a daily advertisement (25 lines)
in two of Vancouver’s leading newspapers Globe & Mail and National Post. Online ads
and banners on health related websites should also be used to target the tech-savvy
women of western Canada. (Advertising Budget $1.36 Million. Refer Exhibit 17 for
allocation among different vehicles and cost/customer calculations). DragonCare should
also develop its own website www.dragoncare.ca to further advertise its products and
build its image as a reliable TCM solutions provider.
Public Relations: Dragon care should work towards building a good corporate image by
ensuring that occasional articles on DragonCare and its products appear in health
magazines and print media. Additionally, the public relations effort may include charity
events, supplying free samples on “Mother’s Day”, “Women’s Day” etc. Dragon care
should participate in social causes related to women’s health issues to create awareness
and goodwill for DragonCare and its products. Dragon care should also participate in
annual shows such as “The Canadian Health Foods Association (www.chfa.ca)” show
15
and “The Importance of women’s health” show. (Public Relations Budget: $185000.
Refer Exhibit 17 for details)
Blogs: DragonCare should use innovative techniques like blogging to generate a positive
word of mouth in the market. As part of this promotion, DragonCare should
initiate/participate in discussions on herbal products in blog sites such as
www.blogscanada.com where its customers can share their experiences on the efficacy of
DragonCare’s products. This channel will prove effective in reaching the tech savvy,
affluent women of western Canada. Currently, most blog sites are free of cost.
Push Strategies:
Sales Promotions: We recommend the use of the following sales promotions at different
times during the year. Free samples should be given to TCM practitioners who can then
distribute those to their customers. As part of a major promotion strategy, a free sample
can be distributed with each copy of one of the leading women healthcare magazines.
DragonCare can also sell value packs (two for the price of one) while launching the
second product in the market for women, add coupons in bottles which give a discount
(5-10%) for the next purchase and can also bundle other items such as key chains, pens,
coffee mugs (with the DragonCare name and logo) to build the brand and to increase
sales. DragonCare should also have campaigns wherein customers can win attractive
prizes such as television, digital cameras, and music system with purchases of
DragonCare products. (Budget for Sales Promotions: $655000. Refer Exhibit 17 for
details)
In-store promotions: DragonCare should offer trade discounts to retailers to secure prime
shelf space in their stores, periodically pay extra for prominent spaces, have campaigns
for DragonCare products during which they are attractively displayed with DragonCare
banners. (Budget: $150,000)
Direct Mail: DragonCare should purchase the list of herbal product consumers (data
driven market research) and send catalogues, brochures etc specifically targeted at these
users. Customer information required for direct mail campaigns can be obtained from
Women’s Health clubs, Chinese Proprietary Medicine Societies and the retail channels
that DragonCare will be affiliated to. (Budget: $80,000. Refer Exhibit 17 for
cost/customer calculations)
16
Distribution
There are three main distribution channels which DragonCare should adopt in Canada:
health food stores, pharmacies, and TCM practitioners. The online channel is not
recommended due to low ROI from this channel.
Natural Health Product Stores: DragonCare should primarily target these stores for sale
of their products through their distribution network.
Pharmacies: About 51% of Canadian Pharmacies are chain/franchise stores like
Shoppers Drug Mart, Pharma Plus and Jean Coutu23. So DragonCare should use this as a
secondary channel. It can use distributors like Source Medical (www.sourcemedical.com),
Life Pharma (www.lifepharma.com) and Mckesson (www.mckesson.com) to obtain shelf
space in this channel. DragonCare can utilize the Canadian Association for Pharmacy
Distribution to build relations with the leading distributors. For ease of co-ordination and
to avoid channel conflicts as well as to reduce risk from singular dependency, Dragon
care should use one distributor each for BC and Alberta.
TCM Practitioners: Dragon care must try and use Health Care Practitioners to capture
new adopters of TCM. DragonCare should use this channel sparingly given that there are
many players fighting for this channel already.
ORGANIZATIONAL PLAN & MANAGEMENT STRUCTURE
Mission, Vision & Values:
We believe that the Canadian subsidiary’s mission should be inline with the Parent
company’s mission of “Caring for the World”. Further, the Canadian arm’s vision should
reflect the Parent company’s desire to be a truly global brand. Based on this reasoning,
we propose the following for the Canadian subsidiary of DragonCare.
DragonCare Canada’s Mission Statement:
“Caring for Humanity by providing the traditional route to lead a healthy life.”
DragonCare Canada’s Vision:
“To be a global healthcare company specializing in Traditional Chinese Medicine.”
DragonCare Canada’s Values:
23

Focus – Our customers.

Quality – Superior products.
TFOC – Pharmaceuticals and Natural Health Products Market Research 2003. www.tfoc.ca
17

People – Very caring.

Research – Path breaking.

Style – Strong teamwork.

Position – Leader.

Reward – Recognition and security
Legal description of the company:
The Canadian arm of DragonCare will be a wholly owned subsidiary of DragonCare Ltd
and will be named DragonCare Canada Limited.
The company will be incorporated as a separate subsidiary under the federal statute and
will be headquartered in Vancouver, British Columbia. However, the company will also
be registered in every province it operates in and will have branch offices in all those
provinces. (Note: It is a government requirement to have a company registered in every
province it operates in and to have a registered office in each of those provinces)24.
The branch offices are subject to laws of the province in which they operate. They
will maintain proper records and file tax returns as required. However, the parent
company will assume unlimited liability for the debts (if any) of its branch operations 25.
DragonCare Canada’s Organization Structure:
Refer Exhibit 18 for the Reporting Structure of the Canadian management team vis-à-vis
the company’s top level management.
The basic reporting structure of the country head (GM Canada) vis-à-vis the
DragonCare top brass has not been changed since it has successfully adopted this very
structure for all its subsidiaries. Hence, GM Canada will report to VP-Sales & Retail. GM
Canada need not have a direct reporting with Manufacturing since it is the Sales
Department which gives production requirements to manufacturing
Since DragonCare Canada’s focus will be marketing, the marketing head will
report directly to GM Canada. The marketing manager will be responsible for all aspects
of marketing and will assist GM Canada in Retail Distributor Relationship Management,
which is key to DragonCare’s business model. He will also oversee CRM efforts that
DragonCare Canada will operate.
24
25
Invest in Canada www.investincanada.gc.ca
TFOC – Pharmaceuticals & Natural Health Products Market Research 2003. www.tfoc.ca
18
Also, a R&D Coordinator will act as a link between Canadian Government and
DragonCare’s R&D division for matters regarding certification, product safety etc. This
coordinator will report directly to GM Canada on product quality, safety matters and
development of new product variants.
The Logistics manager will be in-charge of coordinating with the distributors,
forecasting, and handling inbound and outbound traffic including customs. He will also
assist the Marketing Manager in fostering strong relationships with the distributors.
Managerial Autonomy & Reward System:
The Canadian division will have full autonomy in allocating the resources available to it.
However, the top brass of DragonCare Ltd will decide how much resource to make
available to the Canadian division based on its ability to achieve the parent’s strategic
goals.
The performance evaluation of the Canadian management team will be based on
their ability to achieve yearly Sales and Profit growth targets. We recommend using both
these as criteria for evaluation because:
a) Sales growth is inline with the parent company’s growth vision and
b) It is imperative to achieve the sales growth while also maintaining the premium
branding and pricing strategy.
Achieving one i.e. sale growth or profit growth at the expense of the other will be
detrimental to the strategy of DragonCare Ltd.
Strategic Alliances:
It is not advisable for DragonCare Canada to venture into retailing of its products in
Canada, at least for the first few years, since it will have a very limited product range.
Instead it should leverage Canadian Distributors (both Herbal and Non- Herbal product
distributors) to reach leading pharmacy & NHP outlets.
DragonCare’s value proposition to these Distributors is:
a) In DragonCare, the dealer will find an able ally who will invest heavily in
building a strong brand for its scientifically developed products.
b) DragonCare’s products will provide the distributor another avenue for growth at
almost no cost.
19
c) DragonCare’s premium products will provide the distributors an attractive
proposition to make higher margins.
d) DragonCare will help them bridge a gap between their current line of products
(non-TCM products) and a growing customer demand for TCM products.
Hiring Plan:
Activity
Start Date
End Date
Selection of GM Canada
20th May 05
5th June 05 MD & VP Sales
Selection of Marketing, Logistics, HR, 20th May 05
30th June 05
Finance heads and R&D Coordinator
Hiring Finance, Marketing
Responsibility
VP Sales &
GM Canada
1st Aug 05
15th Oct 05
Function Heads
& Logistics Teams
The GM of DragonCare Canada will be selected from among the executives of the
Singapore division. This person should have a long history with DragonCare and should
be familiar with DragonCare’s culture, philosophy and strategy. It will be beneficial if
this executive was involved in one of DragonCare’s earlier globalization projects and has
a background in Marketing. By selecting the GM Canada from among the executives in
Singapore, DragonCare Ltd can ensure that the Canadian arm has philosophies, strategy
and culture similar to those of the parent division.
DragonCare Canada will hire Canadians to all other management positions,
especially Marketing. This is necessary since heads of these functions need to have a
thorough understanding of the Canadian market and the way it works. These managers
will then be trained at Singapore for a few weeks to orient them with the DragonCare
culture and way of working.
DragonCare Ltd should also send some top level executives from its Singapore
division to Canada for a few months to help set up the Canadian division and mentor the
management in Canada.
Exhibit 19 shows the Head Count Planned for DragonCare Canada in 2005-06.
OPERATIONAL STRATEGY
Operating Model:
Refer Exhibit 20 for the Schematic of the Operating Model to be adopted.
20
DragonCare Canada will source goods from DragonCare’s manufacturing sites in
Singapore and Malaysia and use strategic alliances with Canadian pharma-products
distributors to reach the pharma-retailers and ultimately the end users.
The shipping of goods (lead time 45 days)26 from Singapore/Malaysia to Canada will be
outsourced (preferably to the freight forwarder who handles DragonCare’s current export
shipments to other countries).
Rationale Behind the Choice of Operating Model:
Primary Decision Criteria:
a) Low Risk
b) High Profit
c) High Control
b) Fast Implementation
c) Low Investment
Secondary Decision Criteria
a) High feasibility
The above mentioned operating model will allow DragonCare to reduce its risk by
a) Limiting its investment
b) Allowing it to focus on its core competencies – Product Quality & Marketing
c) Providing it an opportunity to leverage the experience of a partner (the Canadian
Distributor) who has a sound understanding of the Canadian Market.
d) Providing it an easy way of tapping a wide range of retail pharmacy outlets.
Further, this strategy will allow DrgaonCare Ltd to operationalize its Canadian arm in a
short time (8 months). We believe it is critical for DragonCare to come to market in quick
time and build itself a niche position in the market place before competition heats up.
Refer Exhibits 21 to 23 to understand “Evaluation of Alternatives”.
Challenges Associated with the chosen Operating Model:
a) Response to Market fluctuations: Long Supply Chain can result in slower
response to meet sudden changes in customer demand. We hope to counter this by
maintaining a high level of inventory (approx. 67 days of inventory) for the first
two years till we familiarize ourselves with the Canadian market behavior and the
new Supply Chain. However, this will result in higher working capital
requirements. Having only two products in the first two years will help reduce
complexity and enhance our ability to manage inventory effectively.
26
http://www.sinohost.com/yunnan_pages/mushrooms/shippingtime.html
21
b) Co-ordination with Distributor on all aspects – sales forecasting, promotion
activities, supply chain matters etc will have to be done exceedingly well. It will
take some time for the relationship to develop well and things to start functioning
smoothly. We plan to overcome this issue by trying to develop a long term
strategic relationship with the concerned distributor. The Logistics Manager will
be assigned the responsibility to handle all supply chain and forecasting activity
coordination with the distributor. The Marketing Manager will be responsible for
co-coordinating promotion and data collection activities.
Applicable Statutory Requirements:
Mandatory Licensing Requirements:

Product License: In Canada, the federal government is responsible for the
licensing and monitoring of drugs, food, medical devices and natural health
products. DragonCare’s products will be governed by the “Natural Health Product
Regulations” of Canada. For more details visit: http://laws.justice.gc.ca

Business Number: Requirement by Canadian Revenue Agency for financial
reporting27.

Site License: For owning land/property/space.
Mandatory Insurance Coverages:

Fire insurance (extended coverage on buildings and contents)

Liability insurance (against customer complaints)

Burglary protection (theft coverage)

Dishonesty insurance (covers thefts by employees)
List of Key Acts which will regulate DragonCare Canada:

The Investment Canada Act : Regulates Foreign Investment in Canada.
DragonCare will need government approval to set up a subsidiary in Canada.

Employment Equity Act: The act provides for equitable treatment of women,
aboriginal peoples, disabled people and visible minorities in the workplace.
27

Food and Drugs Act and Regulations

Patent Act Amendment Act
Invest in Canada www.investincanada.gc.ca
22

Consumer Packaging and Labeling Act and Regulations: Need to meet certain
minimum labeling requirements like labeling in English and French.

Competition Act

Trademarks Act

Customs Tariffs Act

The Patented Medicines Regulations

The Manufacturing and Storage of Patented Medicines Regulations

Good Manufacturing Practice Guidelines.
For more details on these acts visit:
a) http://investincanada.com
b) http://strategis.ic.gc.ca c)www.businessregistration.gc.ca
d) http://www.hc-sc.gc.ca/hpfb-dgpsa/nhpd-dpsn/index_e.html
Short Term Project Implementation Plan:
Refer Exhibit 24 for DragonCare Canada project implementation gantt chart.
Refer Exhibit 25 for list of responsibility assignment for the project activities.
List of Activities Critical to Meet Implementation Timeline:
a) Production Capacity Expansion
b) Canadian Distributor Sourcing
c) Shipping Supplier Sourcing
d) License Approvals
Note: All these activities do not tie up into a single Critical Path. However these activities
need to be given top priority to ensure a timely launch.
DragonCare Canada’s Long Term Plan with Timelines:
DragonCare Canada should extend its product line in two years and introduce the
children’s healthcare products. It should also start two TCM clinics in Vancouver by
2008 so that it can fulfill its value proposition to customers. DragonCare should plan to
expand to the eastern Canada, specifically Ontario, in 2009 (by then it should have
established a brand name in western Canada). It can then introduce more products (2010)
and then open a concept store in Vancouver (2011) which show cases the entire range of
DragonCare products.
23
Dragoncare, with its limited resources should focus on growing primarily in the
Canadian market. However, if a few years down the road, DragonCare decides to enter
the US market, it should consider setting up a manufacturing unit in Canada to take
advantage of the North American Free Trade Agreement and use Canada as a
manufacturing base for North America. However, we do not recommend setting up a
manufacturing unit in Canada to target the Canadian market as the production costs are
lower in Malaysia and Singapore.
Refer Exhibit 26 for DragonCare Canada’s Long Term Roll Out Plan.
Operating Expenses:
Exhibit 27 lists out the Budgeted Operating Expenses for years 2005 to 2010.
FINANCIAL ANALYSIS
Refer Financial Performance Exhibits 28 to 44 for projected financial statements, net
present value of project, breakeven analysis, sensitivities and ratio analysis.
Source of Funds: We recommend that DragonCare Ltd use long term financing from its
current bank in Singapore to fund investment in fixed assets. See Exhibit 31 for total
financing required by DragonCare Canada up to 2010.
Investment in working capital and initial set up expenses of the Canadian
operations will be funded by the excess cash of DragonCare Ltd. In later years,
DragonCare Canada will secure working capital requirements from a Canadian bank.
The current Debt/Equity ratio of 0.57 and leverage of 1.52 provide it good
financial flexibility and it should not be an issue for DragonCare to get additional loans.
Further, given DragonCare Ltd’s strong financial performance – increasing profitability,
good cash flows, high interest coverage ratios and liquidity ratios – and its sound fixed
assets base – plant, machinery, retail stores (real estate) in prime locations –, DragonCare
Ltd’s current bank should not have any major problems in financing DragonCare’s
additional funding requirements.
By following this strategy, DragonCare will maintain a healthy Ending Cash
Balance (Refer Exhibit 41) to safeguard itself against any untoward developments and
also preserve its financial flexibility for future growth needs (Refer Exhibit 40 for
Debt/Equity Ratios).
24
Application of Funds:
The funds will be mainly used for production capacity expansion at the Singaporean /
Malaysian manufacturing sites, funding working capital increases, development of
website and initial setup and marketing expenses of Canadian operations.
Structure of New Loans:
The prime lending rate in Singapore has been stable at around 5.3%28 over the past 4
years and is expected to remain steady in the near future29 due to the continuing trend of
low inflation. Hence, we believe that it will not very difficult to secure a fixed interest
rate loan from its current bank.
Financial Risks & Challenges:
Foreign Exchange Fluctuations
The Canadian Dollar is currently going strong and this is good news for DragonCare
Ltd’s plans to enter Canada now. However, an appreciation of the Singapore Dollar
against the Canadian Dollar in the near future cannot be ruled out and if this happens, it
would be detrimental to the interests of DragonCare Ltd.
Risk Mitigation Steps Hedging Contracts should be undertaken when required.
Working Capital Requirements
The long supply chain makes it imperative to maintain a large finished goods inventory in
Canada in order to have the desired flexibility to meet the Canadian market demands.
This will be true at least for the initial years till DragonCare Canada gets to understand
the market behavior and the supply chain issues better.
Hence, the long supply chain will result in a highly “Positive Cash Cycle”. As a
result, financing working capital increases associated with the aggressive sales growth
forecasted for the Canadian operations will be a challenge.
In order to overcome this challenge, sales growth in Canada should be
accompanied with supply chain efficiency improvements and better inventory
management based on a sound understanding of the Canadian market behavior.
28
29
Statistics Singapore http://www.singstat.gov.sg/keystats/mqstats/ess/aesa52.pdf
Statistics Singapore http://www.singstat.gov.sg/keystats/hist/cpi.html
25
Financial Risk
Given DragonCare Ltd’s geographic diversification and strong financial performance, a
steady cash stream to meet interest obligations does not seem to be an issue at present.
(Refer Exhibit 40 for Interest Coverage i.e.EBIT/Interest).The expectation of steady
interest rates in Singapore into the future augurs well for DragonCare Ltd even if it only
manages to secure a floating interest rate loan.
Further, by taking on debt in a phased manner (inline with the phased expansion
plan in Canada), DragonCare Ltd will ensure that it is not straddled with unmanageable
debt if the Canadian business does not unfold as planned.
BUSINESS RISKS
Regulatory Risks:
The Alternative Health Care market is relatively new and less strictly regulated at
present. However, given that this is a fast growing segment in healthcare, the government
may impose stricter regulations in the future, especially related to safety standards.
Mitigation Steps Develop good relationship with the government and create a premium
brand image supported by high quality and scientifically developed products.
Competitive Risks:
The TCM market in Canada can be expected to attract many players in the near future
because of its attractiveness. An entry by a “Brand & Research” oriented competitor can
result in DragonCare facing tough times in its niche segment.
Mitigation Steps Build a strong brand in Canada quickly to gain the “first mover
advantage” and also lock in the major pharma-product distributors (and through them, the
retailers).
Litigation Risks:
The Pharmaceuticals industry is susceptible to litigation risks.
Mitigation Steps Contract a reputed legal firm like H&R Block, to sort out the legal
issues in Canada.
DragonCare’s Lack of Business Experience in North America:
The lack of prior experience of operating in North America can pose a significant
challenge to DragonCare’s efforts to be successful in this market. However, given the
fact that in North America, DragonCare sees its future growth, it has to take this leap.
26
Canada can also act as a strategic testing & launching ground for DragonCare’s desire to
tap the US market.
Mitigation Steps The top management of the Canadian division (except GM Canada)
should all be Canadians who have long work experience in North America (preferably in
the herbal products industry) and should be well versed with the Canadian market
conditions.
DragonCare Canada – The Journey Begins Here!
27
Why Canada as an Investment Destination !
Exhibit 1:
Source: KPMG Competitive Alternatives G7 2004 edition
C
World Rank
1st
3rd
5th
6th
.
la
er
7th
.K
i tz
Sw
U
nd
D
ar
m
en
8th
k
Ire
nd
la
9th 10th
Business Environment of Top Ten
Countries, Rank in 2004-2008
2nd
4th
.
g
d
e
s
a
A
.
on
or
an
ad
nd
.S
K
nl
ap
U
an
rla
g
Fi
ng
he
on
Si
et
H
N
28
Exhibit 2:
PEST Analysis
Political

 Free Trade Agreement in Progress with Singapore
 Natural Health Product industry not highly regulated
 Flexible health care plans to cover NHP costs
 Favorable tax policy
Technological
 High Computer literacy
 Widespread use of internet.
 B2B software solutions for
supply chain integration
 High effectiveness of Online
Advertising.
 Focus on R&D
Economic
Canada
Macro Economic Analysis
FAVORABLE!!!
 High GDP Growth
 Positive Consumer
sentiment and spending
 Low unemployment
 Strong Dollar value
 Favorable Exchange Rate
with Singapore
 Low interest rates
 Low Inflation
Social
 Health Consciousness
 Increasing awareness of TCM and its benefits.
 Increasing population growth rates
 Large Population of Chinese Immigrants
29
Exhibits on the Canadian Natural Health Products Market
Exhibit 3:
A Market Research Summary
A) % of Canadians using NHPs = 51%
B) Market Size of Herbal Medicine Industry in Canada = $ 1048 million
C) Annual Industry Growth Rate = 20%
D) % of Women using NHPs = 49%
E) % of Men using NHPs = 37%
F) % of people taking NHPs in Alberta and British Columbia = 51%
References:
Source of A, D, E & F: http://www.ndmac.ca
NDMAC - Self Care and Health - Consumer Profile - The use of Natural Products in Self Care
Source of B & C: www.tfoc.ca
TFOC Market Research Report on Pharmaceuticals and Natural Health Products 2003.
Exhibit 4:
Use of Natural Health Products(NHPs)by Region
Source: http://www.ndmac.ca
NDMAC - Self Care and Health - Consumer Profile - The use of Natural Products in Self Care
30
Exhibit 5:
Reasons for taking Natural Health Products (NHPs)
Source: http://www.ndmac.ca
NDMAC - Self Care and Health - Consumer Profile - The use of Natural Products in Self Care
Exhibit 6:
Frequency of Taking NHPs by Region
Frequency of Taking Natural Health Products by Region
Maritimes
%
Québec
%
Ontario
%
Man./
Sask.
%
Alberta
%
British
Columbia
%
Daily
49
40
53
57
51
56
Occasionally
30
37
26
25
27
25
When Not
Feeling Well
6
6
10
8
11
9
Source: http://www.ndmac.ca
NDMAC - Self Care and Health - Consumer Profile - The use of Natural Products in Self Care
31
Exhibit 7:
Use of NHPs by Household Income
Source: http://www.ndmac.ca
NDMAC - Self Care and Health - Consumer Profile – Summary of Demographic Factors
Exhibit 8:
Sources of Information for Customers
Source: http://www.ndmac.ca
32
NDMAC - Self Care and Health - Consumer Profile – Sources of Information
Exhibit 9:
Forces
Barriers to Entry
Supplier Power
Buyer Power
Threat of
Substitutes
Competitive
Rivalry
The Five Forces Analysis for Industry Attractiveness
Analysis
No major players in the market
Low product differentiation
Low capital requirements
Limited access to distribution channels
Low economies of scale
Liberal government policy
Few patents
Many small suppliers
Geographically distributed
Less forward integration
Low Bargaining Power
Effect
Low
Low
Distributor
High volume
Choice of many small suppliers
Consumer
Low volume purchases
Wide choice of herbal products
Low differentiation, Low availability
Medium
Regular use prescription medicines
Non-prescription OTC medicines
Ayurvedic medicines
Medium
Many small competitors
No major brands
Industry
Attractiveness
HIGH
Medium
Rule: Weaker the Forces, Higher will be the Profitability & Attractiveness of the
Industry
33
Exhibit 10:
Evaluation of Canadian Entry Strategies
Canadian Market Entry Strategy
Joint
Venturing
Analysis
Sub-Categories
Licensing
Low Risk, Low Profit, Low
Control
Contract
Manufacturing
Low risk, Medium Profit, Low
control
Joint
Ownership
Medium Risk, Medium Profit,
Medium Control
Direct
(Self-Managed)
Medium Risk, High Profit,
High Control
Indirect
(Intermediaries)
Low Risk, Medium Profit,
Medium Control
Manufacturing
(New setup in
Canada)
High Risk, High Profit, High
Control
Acquisition
(in Canada)
High Risk, High Profit, High
Control
Exporting
Direct
Investment
Other Factors Considered
Joint
Venture
Acquisition
Implementation Time
Investment
DragonCare’s past
experience with the
Alternatives
Potential to Leverage
Partner’s Knowledge about
the Canadian Market
Low
Low
None
Low
Very High
None
High
ModerateHigh
Decision Criteria
Low to Medium Risk, High Profit, High Control
Alternatives
Strategy
Direct
Exporting
New
Manufacturing
Set Up in
Canada
High
Very High
None
Exporting
Low
Low
Low
Moderate
High
34
Exhibit 11:
DRAGONCARE CANADA Ltd’s
3 PRONGED VALUE PROPOSITION TO CUSTOMERS
Quality
•Safety
•Efficacy
•Research
•Brand
Service
Health
•TCM Clinics
•Longevity
•Consultancy
•Immunity
•Helplines
•Energy
35
Exhibit 12:
Dragon Care Product Positioning
Brand Image
Dragon Care
Competitors
Scientifically Researched &
Developed Products
36
Exhibit 13:
Market Size for Women’s Products
Western Canada Women's Natural Health Product Market Size Calculations
A) Population of Canada
B)% of Population Using Natural Health Products (NHPs)
C)Number of Consumers of NHPs
D)% of Canadian Population in Upper Middle and Higher Income group
E)Number of Upper Middle class and Rich class consumers of NHPs
F)% of Women in among E
G)Number of Upper Middle and Higher Income women consumers of NHPs
H)% of above women population in 15+ age group
I)Number of women in 15+ age group using NHPs
J)% of I in BC and Alberta
K)Number of women users of herbal medicines in the 15+ age group in BC and Alberta
L)Average spending per month for above women population on NHPs
M)Total Women Natural Health Product Market Size in canadian dollars per year
N)% of M for products similar to Dragoncare's
O) Target Market size in canadian dollars per year
P)One canadian dollar to Singpore dollar conversion factor
Q)Target Market size in Singapore dollars per year
30750100
51%
15682551
65%
10162293
51%
5192932
91%
4709989
24%
1130397
$30
$406,943,058
40%
$162,777,223
$1.31
$213,238,162
C = A*B
E = C*D
G = F*E
I = G*H
K = J*I
M = K*L
O = M*N
Q = P*O
Source of B): http://www.ndmac.ca/index.cfm?fuseaction=main.DspSubPage&PageID=10&SubPageID=950&fkMainPage=10
Source of F & H):http://www.answers.com/topic/demographics-of-canada
Source of J) http://atlas.gc.ca/site/english/maps/peopleandsociety/population
Source of D) http://www.cfc-efc.ca/docs/ccsd/00000324.htm. (4th and 5th Quintiles have been considered)
Source of L: http://www.hc-sc.gc.ca/hppb/healthcare/pubs/comp_alt/stock.html
N): 40% of the NHP industry is for TCM products.
Target Market Size Growth Over Years
Year
Expected Growth
Size (in 000's SGD)
2006
20%
213238
2007
20%
255886
2008
15%
294269
2009
13%
332524
2010
10%
365776
Note: Growth in Western Canada is forecasted to slow down in the later years as the market matures .
Exhibit 14:
Market Size Calculations for Children’s Products
Western Canada Children's Natural Health Product Market Size Calculations
A) Population of Children in Canada (< 10 Years of age)
B)% of Infant Population in BC & Alberta (Same as % of Candian Population in BC &Alberta)
C)Number of Children in BC & Alberta
D)% of Children Population in Upper Middle and Higher Income group
E)Number of Children in Upper Middle class and Rich class
F)Average Number of Children / Family in Canada
G)Number of Upper Middle Class & Higher Income Mothers in BC & Alberta
H) % of Mothers who use Natural Health Products (NHPs) for themselves
I) Number of Mothers using NHPs
J) % of I who will buy NHPs for their kids
K) Number of Mothers buying NHPs for their kids
L) Average spending per month on NHPs
M)Total Children's Natural Health Product Market Size in canadian dollars per year
N)% of M for products similar to Dragoncare's
O) Target Market size in canadian dollars per year
P)One canadian dollar to Singpore dollar conversion factor
Q)Target Market size in Singapore dollars per year
3700000
23%
854700
65%
553846
1.5
369230
51%
188308
85%
160061
$30
$57,622,096
40%
$23,048,838
$1.31
$30,193,978
C = A*B
E = C*D
G = E/F
I = G*H
K = I*J
M = K*L
O = M*N
Q = P*O
Source of A): http://www.absoluteastronomy.com/encyclopedia/D/De/Demographics_of_Canada.htm
Source of B): http://www.absoluteastronomy.com/encyclopedia/L/Li/List_of_Canadian_provinces_and_territories_by_population.htm
Source of D) http://www.cfc-efc.ca/docs/ccsd/00000324.htm. (4th and 5th Quintiles have been considered)
Source of F: http://www.statcan.ca/english/Pgdb/famil50a.htm
Source of H): http://www.ndmac.ca/index.cfm?fuseaction=main.DspSubPage&PageID=10&SubPageID=950&fkMainPage=10
Source of J): An estimate. Most mothers will want to provide the health benefits they get from NHPs to their kids.
Source of L: http://www.hc-sc.gc.ca/hppb/healthcare/pubs/comp_alt/stock.html
N: 40% of herbal medicines in the market are TCM products.
37
Exhibit 15:
Canadian Total
Chinese
Filipino
Vietnamese
Total Asia- Pacific
British Columbia
Chinese
Filipino
Japanese
Vancouver
Chinese
Vietnamese
Asian Immigrant Population Distribution
Population in
Millions
29.64
1.09
0.3
0.15
1.54
As a % of Total
Canadian Population
Population in
Millions
As a % of Total
Province Population
3.8
0.38
0.068
0.037
10.00%
1.79%
0.97%
Remarks
3.68%
1.01%
0.51%
5.20%
Remarks
Chinese Population % in BC is much higher than
canadian average and is 35% of entire chinese
population
Population in
As a % of Total City's
Millions
Population
Remarks
Vancouver accounts for 51% of BC population
1.96
Note: Almost 90% of chinese population in BC is
0.347
17.70% in Vancouver
0.022
1.12%
Synopsis of Exhibit: Western Canada, especially British Columbia, is an attractive
market for DragonCare due to the large, concentrated and potentially easy to tap Asian
Immigrant Population.
Source: http://www.statcan.ca/english/Pgdb/demo26a.htm
http://www.statcan.ca/english/Pgdb/demo27a.htm
38
Exhibit 16:
Sample Label
DragonCare Brand Logo in this position
TM
Recommended Dosage: 2 Tablets a day
Recommended Dosage: 2 Tablets a day
Directions for Use:
Directions for Use:
Scientifically
Proven
Mfg Date:
CMPA
Certified
Mfg Date:
Exp Date:
Exp Date:
Batch No:
Batch No:
Mfg at: DragonCare Ltd, Singapore
Mfg at: DragonCare Ltd, Singapore
Formula to a Healthy Life
A Chinese wellness formula for women
Information in English
Exhibit 17:
Information in French
Marketing Budget Allocation for 2006
Budget Allocation for Market Tests
Cost
Remarks
15000 Limited Group
50000 Testing in Sample Retail Outlets in different localities
- Simulated Testing
- Controlled Test Environment
Budget Allocation for Advertisements
Vehicle
- Health
Magazines/Books
- Bill Boards
Total Reach/
Circulation in
Western Canada Cost/Use (SGD)
315000
150000 people
per Bill Board
- Cable TV
1300000
- Radio
2100000
- Newspaper
2000000
- Online Advts
- Total
1000000
Frequency/
Duration of
Use
$17000 per Full
Page Advt.
25 per Year
$2500 per Month
10 Boards
per Board
Year Round
$ 200 per 30 secs
slot +
$ 5000 for
developing Advt. 1000 per Year
$50 for a 30 sec
airing
3000 per Year
$10 per Line
Daily
$700 per month for
websites reaching 10 Websites
100000+
Year Round
Total
Annual
Cost(SGD)
Estimated
Response
Rate
Cost/
Customers Customer
Acquired
(SGD)
425000
3.00%
9450
44.97
300000
1.00%
15000
20.00
Advertisements in Chatelaine,
Canadian Living & Homemaker's
Bill Boards in High Foot Step
Areas
Low cost targetted advertising
through local cable TV. 4
Different Advts will be developed
Remarks
220000
1.20%
15600
14.10
150000
0.50%
10500
14.29
182500
0.50%
10000
18.25
Effective if used repeadtedly.
25 Line Ad with Logo DAILY in
top two Newspapers
84000
1361500
0.20%
2000
62550
42.00
21.77
Online Advts Will help drive
sales demand.
Average Cost/Customer
Sources of Information
Costs for Cable TV: http://www.4hb.com/marketing/0131wwiobiz64adcable.html
Cost of Developing TV Advt: http://www.cheap-tv-spots.com/options.html
Cost of Health Magazine/Books Advt: http://www.chatelaine.com/binary/pdf/CHERateCard.pdf
Reach of Health Magazines/Books: http://www.transcontinentalpro.com/eng/pdf/canadian_living_m.pdf
Costs for Bill Boards: http://www.gaebler.com/Billboard-Advertising-Costs.htm
Costs for Radio Advt: http://www.albertaprolife.com/resources/radio.html
Costs of Online Advt: http://vancouver.weatherpage.ca/info/vwp_rate_card_0305.pdf
Costs of Online Advt: http://www.vistamagonline.com/articles/page.php?s=ad_rates
Costs of Online Advt: https://adwords.google.com/support/bin/answer.py?answer=6382&hl=en_US
Costs of Newspaper Advt: http://www.canada.com/national/nationalpost/info/advertise/ad_pdfs/2005_1477_%20Western_Rates.pdf
Exhibit 17 Continued on Next Page
39
Budget Allocation for Sales Promotions
Cost (SGD)
Remarks
Bundling
Coupons
Free Samples with
Magazines
165000
100000
Bundle other Items
Lottery
Instore Promotions & Trade
Discounts
Total
100000
100000
Buy one get one free/ discount on second
Discount Coupons
Free Samples distributed with 30000
Health Magazines
DragonCare logo bearing Key
Chains,Pens, Coffee Mugs
Lucky Draw Campaign
187500
150000
802500
Special promotion activities in retail outlets
Budget Allocation for Direct Mail Campaigns
Direct Mail Campaigns
Reach
Cost/Person
Approached
Total Annual
Cost
Response
Rate
Customers
Acquired
Cost/
Customer
(SGD)
20000
$1 per reference +
$2 Material + $1
Postage. Target
80000
0.08
1600
50
Remarks
These Customers can be
expected to have long term Value
to DragonCare as they will
definitelyy be repeat buyers
Budget Allocation for Other Promotions
Cost (SGD)
Remarks
Free Samples to Practitioners
16000
100 Practitioners given 25 Samples each
Sponsorships of Social &
Charitable Causes
Trade Shows
150000
35000
High Spend inline with Long Term Strategy
of Creating Goodwill for better returns
Annual Trade Exhibitions costs
Exhibit 18:
Management Structure
Group Chairman
Singapore Management
Managing Director
Direct Reporting
Functional Reporting
Chief Scientist
VP- Sales and Retail
Operations
VP- Finance
GM Canada
Finance
Manager
Finance Dept
Materials/Logistics
Manager
VP- Manufacturing
Canada Management
Marketing
Manager
H.R Manager
R&D Co-ordinator
Logistics Dept
40
Customer Relationship
Management Dept
Marketing Dept
Exhibit 19:
Head Count in Different Departments
Department
Finance &
Invoicing
Marketing &
CRM
Head Count (Direct Employees)
Contract Employees
3
2
5
1
Total Number of Employees
(Including GM)
Exhibit 20:
Material
Management &
Logistics
2
1
R&D
Support
HR
1
1
2
1
20
OPERATING MODEL
Information Flow
DragonCare Canada
TCM Practitioners
Material Flow
Retail Pharmacies
Canadian Distributor
Manufacturing Sites
in Singapore/Malaysia
Retail Pharmacies
By 3rd Party
Exhibit 21:
Customers
- Warehousing & Distribution
Shipping
Retail Pharmacies
Evaluation of Manufacturing Alternatives
Factors
Produce in Singapore and
New Production facility in
ship finished goods to
Canada
Canada
Implementation time
Low
High
Investment
Low
High
Production cost
Low
High
Inventory cost
High
Low
Volume flexibility
Low
High
Ease of Exit (Contingency)
Easy
Difficult
Import tariff
0
-NA-
Co-ordination between
Easy
Difficult
R&D and Production
41
Exhibit 22:
Evaluation of Distribution Alternatives
Factors
Selling directly to retailers
Selling to distributors
Investment
High
Low
Feasibility
Low
High
Resources required
High
Low
Margins for DragonCare
High
Low
Administration
Complex
Easy
Warehouse required?
Yes
No (Use distributor’s)
Exhibit 23:
Factors
Evaluation of Retail Alternatives
Setting up DragonCare
Use of Existing Retailer
Chain of Retail Stores
Network
Investment
High
Low
Implementation Time
High
Low
Feasibility
High
Medium
Resources required
High
Low
Margins for DragonCare
High
Low
Administration
Complex
Easy
42
Exhibit 24:
Project Implementation Gantt Chart
Understand Licencing &
Incorporation Requirements
Top Management Hiring
Incorporation
Product Licencing
Site Licencing
Production of 1st Batch (90Days Inventory)
Shipping from Singapore to Canada
Planning of Capacity Expansion
Launch
Shipping Supplier Sourcing
Sourcing Canadian Distributor
Marketing Planning & Promotion Activity.
Website Design and Building.
Capacity Expansion Activities
May 15th 05
May 31st
June 30th
July 15th
Aug 31st
Oct 15th
Oct 31st
Nov 15th
Dec 31st
Jan 15th 06
Setting up & Licensing Activities
Strategic Activities
Launch Phase Activities
43
Exhibit 25:
S.No
1.
Responsibilities for Project Implementation Activities
Activity
Management Team Hiring
Responsibility
Group Chairman, VP- Sales & Retail, GM
Canada
2.
Incorporation
GM Canada
3.
Product Licensing
GM Canada , R&D Coordinator
4.
Capacity Expansion
VP - Manufacturing
5.
Shipping Supplier Sourcing
Purchasing Head, Singapore & Logistics
Manager
6.
Sourcing Canadian Distributor
GM Canada, Marketing Manager &
Logistics Manager
7.
Site Licensing
Logistics Manager
8.
Marketing Planning & Promotion
Marketing Manager & GM Canada
Activity
9.
Website Development & Hosting
Marketing Manager
44
Exhibit 26:
Long Term Strategy Roll Out Plan
Jul – Dec 2011:
Jan 2006:
Mar – Oct 2009:
DragonCare Canada
goes operational.
DragonCare goes east.
Starts operations in
Ontario.
Launch of “HealthCare
For Women” products
2
0
0
6
2
0
0
5
June 2005:
2
0
0
9
2
0
0
8
2
0
0
7
It leverage established customer
base of women to venture
into infant products.
20112011-2012:
Product line includes
soups, cereals, etc.
DragonCare sets up two – three
TCM clinics in Vancouver.
2
0
1
2
2
0
1
1
2
0
1
0
DragonCare introduces
more products in a phased
manner to support its
“Flagship” women’s
products.
DragonCare launches “HealthCare
for Children” products.
Exhibit 27:
The Store promotes and sells complete
line of DragonCare products
Jan – Dec 2010 :
Oct 2007 - Jan 2008:
DragonCare Canada
registered and set up
in BC and Alberta.
DragonCare Canada sets up
a “Concept Store” in Vancouver.
DragonCare sets up
Manufacturing unit in
Vancouver.
Plant to cater to Canadian
And US markets.
Operating Expenses
OPERATING EXPENSES
Figures in 000's of SGD
Salaries & Health Benefits
Administration Expenses
- Travel
- Training
- Office Supplies
- Office Maintenance
- Office Lease
Total General & Admin Expenditure
2005
340
2006
804
2007
1082
2008
1446
2009
1703
2010
1983
50
50
5
5
50
500
60
60
6
5
65
1000
60
70
7
6
75
1300
70
80
8
6
90
1700
80
100
10
7
100
2000
100
100
10
7
100
2300
45
Financial Performance Exhibits:
(All figures in 000’s of Singapore $)
Exhibit 28:
DragonCare Canada Pvt Ltd Forecasted Income Statements
Yearly Sales Growth
upto 2010
75%
Sales Growth in 2010
35%
% of Sales
100%
6%
2005E
0.0
0.0
2006E
5000.0
300.0
2007E
8750.0
525.0
2008E
15312.5
918.8
2009E
26796.9
1607.8
2010E
36175.8
2170.5
Gross Margin
Transportation Cost
SGA
EBITDA
94%
4%
80%
10%
0.0
0.0
800.0
-800.0
4700.0
200.0
5000.0
-500.0
8225.0
350.0
7000.0
875.0
14393.8
612.5
12250.0
1531.3
25189.1
1071.9
21437.5
2679.7
34005.2
1447.0
28940.6
3617.6
Depreciation
EBIT
4%
0.0
-800.0
200.0
-700.0
350.0
525.0
612.5
918.8
1071.9
1607.8
1447.0
2170.5
Sales
COGS
Interest
0.0
108.8
190.3
333.0
582.8
786.8
PBT & Minority Interests
-800.0
-808.8
334.7
585.7
1025.0
1383.7
Minority Interests
-153.6
-155.3
64.3
112.5
196.8
265.7
PBT
-646.4
-653.5
270.4
473.2
828.2
1118.0
Taxes Payable on Profit
-245.6
-248.3
102.8
179.8
314.7
424.9
Tax Cover from previous Year
0.0
245.6
494.0
391.2
211.4
0.0
Actual Taxes Paid
0.0
0.0
0.0
0.0
103.4
424.9
Tax Cover Carried Over
245.6
494.0
391.2
211.4
0.0
0.0
PAT
-400.8
-405.2
270.4
473.2
724.8
693.2
NOTE: 1) Sales are based on Dragoncare's price to retailers. Retailer margins are above this price.
2) Fixed Assets/Sales is assumed to remain at current level of 0.29 (It has been in the range of 0.3 for the past 4 years)
3) TCM products come under classification 3004.20.00.79 and no customs duty applies. Only PST applies which is levied on the customer.
Sources: http://www.cbsa-asfc.gc.ca/E/pub/cm/d10-14-30/d10-14-30-e.html & Departmental Consolidation of the CUSTOMS TARIFF 2005
Remarks & Assumptions
Sales Price is adjusted to accommodate
part of transportation cost.
$2.5 million marketing expense in 2006
4% of Sales based on assumption that
Depex is 10% of Fixed Assets
Interest Rate 7.5%. Prime Lending Rates
of Most Singapore Banks is around 5.5%
19.2% Min. Interest. (From 2004
Taxes =38% (Canadian)
Exhibit 29:
Sensitivity Analysis of Income from DragonCare Canada
Profits (in 000's of SG$)
Sales Growth Rates
2005E
2006E
2007E
2008E
2009E
30%
-400.8
-405.2
200.9
261.2
339.5
40%
-400.8
-405.2
216.3
302.9
424.0
50%
-400.8
-405.2
231.8
347.7
521.5
60%
-400.8
-405.2
247.2
395.6
633.0
80%
-400.8
-405.2
278.2
500.7
756.8
90%
-400.8
-405.2
293.6
557.9
827.5
Note: Sales in 2006 will be $5 million in all scenarios. This is a conservative figure given that the market size
itself is $ 213 million and is growing at 20% per annum.
Exhibit 30:
Operating Cash Flow for Canadian Operations
Net Income
Add: Depreciation
Less:
Taxes carried forward
Increase in AR
Increase in Inventory
Increase in Other Current Assets
Add: Increase in Current Liabilities
Net Cash Flow from Operations
2005E
-400.8
0.0
2006E
-405.2
200.0
2007E
270.4
350.0
2008E
473.2
612.5
2009E
724.8
1071.9
245.6
0
248.3
438.36
0
328.77
0
575.34
0
1006.85
0
0
0
917.81
57.53
750.00
688.36
43.15
562.50
809.08
75.51
984.38
1415.88
132.15
1722.66
-646.4
-1117.2
122.7
610.2
964.5
2010 E
693.2
1447.0
Remarks & Assumptions
0
822.26 32 Days receivable
67 Days inventory upto 2007. Reduced to 45
days after that since we will have better
1156.30 experience by then
107.92 4 Days other current assets
1406.84 15% of sales (similar to current levels)
1460.6
46
Exhibit 31:
Net Cash Flow Projections for Canadian Operations
2005E
2006E
2007E
2008E
2009E
2010 E
Net Cash Flow from Operations
-646.40
-1117.17
122.65
610.19
964.48
1460.57
Net Cash Flow in Investments
0.00
-1450.00
-1087.50
-1903.13
-3330.47
-2719.88
Cash Flow from Financing
0.00
1450.00
1087.50
1903.13
3330.47
2719.88
NET CASH FLOW
-646.40
-1117.17
122.65
610.19
964.48
1460.57
Note:Cash flow in investments in future years will be low due to slower average growth of around 5-10%.
Hence, cash flows from operations in future years will be steady and sufficient to cover any future investment requirements
Growth will slow down because DragonCare would have completed its geographic and product line expansions by end of 2010.
Exhibit 32:
NET PRESENT VALUE OF DRAGONCARE CANADA PLAN (in 000's SGD)
Revenues
EBIT
Less: Taxes on EBIT
Net Operating Profit After Tax
2005
0
-800
-304
-496
2006
5000.00
-700.00
-266.00
-434.00
Free Cash Flow Calculation
NOPAT
Plus: Depreciation
Gross Cash Flow
Less: Increase in Working Cap
Less: Cap. Expenditure
Free Cash Flows
PV of Cash Flows
-496
0
-496
0
0
-496
-496
-434.00
200.00
-234.00
663.70
1450.00
-2347.70
-2134.27
NPV of Project
325.50
350.00
675.50
497.77
1087.50
-909.77
-751.88
569.63
612.50
1182.13
475.56
1903.13
-1196.56
-898.99
996.84
1071.88
2068.72
832.22
3330.47
-2093.97
-1430.21
1345.74
1447.03
2792.77
679.65
2719.88
-606.76
-376.75
1480.31
1591.73
3072.05
1233.59
1049.10
789.36
445.57
1628.34
1750.91
3379.25
1356.95
1154.01
868.29
445.57
1791.18
1926.00
3717.18
1492.65
1269.41
955.12
445.57
1970.30
2118.60
4088.90
1641.91
1396.35
1050.63
445.57
2167.33
2330.46
4497.78
1806.11
1535.98
1155.70
445.57
2275.69
2446.98
4722.67
1896.41
844.79
1981.47
694.49
5209
Assumptions Made
Sales Growth Rate upto 2009
75%
Sales Growth in 2010
35%
Sales Growth from 2010-2015
10%
Assumptions for Terminal Value Calculation
NOPAT Growth Rate beyond 2016
5%
Weighted Average Cost of Capital
10%
In the Long Run, Depreciation = Capital Expenditure
In the Long Run, Working Capital Change = 0
Exhibit 33:
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 Terminal Value
8750.00 15312.50 26796.88 36175.78 39793.36 43772.70 48149.96 52964.96 58261.46 61174.53
525.00
918.75 1607.81 2170.55 2387.60 2626.36 2889.00 3177.90 3495.69 3670.47
199.50
349.13
610.97
824.81
907.29
998.02 1097.82 1207.60 1328.36 1394.78
325.50
569.63
996.84 1345.74 1480.31 1628.34 1791.18 1970.30 2167.33 2275.69
23894.77
Remarks
Aggressive sales growth estimate due to plans of expansion through product launches and geographic expansion
Sales growth estimate is lower due to no major growth drivers & increased competition.
Market to reach maturity and stiff competition expected.
NPV Sensitivity & ROI Calculations
Sensitivity Analysis for NPV of DragonCare Canada Project
WACC
NPV
5209.21
0.07
0.08
0.09
0.10
0.11
0.12
0.13
Terminal NOPAT Growth Rates
0.01
0.02
0.03
0.04
12831.04 12985.49 13139.94 13294.39
9401.14 9523.14 9645.14 9767.14
6844.41 6942.40 7040.39 7138.38
4890.17 4969.93 5049.69 5129.45
3366.95 3432.59 3498.23 3563.87
2161.12 2215.64 2270.15 2324.67
1194.52 1240.16 1285.79 1331.43
0.05
0.06
13448.84 13603.30
9889.14 10011.14
7236.37 7334.36
5209.21 5288.98
3629.51 3695.15
2379.19 2433.71
1377.06 1422.70
5- Year Return on Initial Investment
Profit After Tax
PV of Profits
Total PV of Profits
Investments
Return on Initial Investment in 5 years
2005
2006
2007
2008
2009
2010
-400.768 -405.1514 270.4275 473.2481 724.8281 693.1902
-400.768 -368.3195 223.4938 355.5583 495.0673 430.4166
305.032
2113.70
14.43%
47
8374.97
Exhibit34:
Net Profit Trend for DragonCare Canada
800.0
600.0
000's Singapore $
400.0
200.0
0.0
2005E
2006E
2007E
2008E
2009E
2010E
-200.0
-400.0
-600.0
Year
Exhibit 35:
Cash Flow from Operations of DragonCare Canada
2000.0
1500.0
000s of Singapore $
1000.0
500.0
0.0
2005E
2006E
2007E
2008E
2009E
2010 E
-500.0
-1000.0
-1500.0
Year
48
Exhibit 36:
Cumulative Cash Flow from DragonCare Canada
Operations
1500.0
1000.0
000's of Singapore $
500.0
0.0
2005E
2006E
2007E
2008E
2009E
2010 E
-500.0
-1000.0
-1500.0
-2000.0
-2500.0
Year
Exhibit 37:
Forecasted Income Statements of Non-Canadian DragonCare Operations
% of Sales
Sales
2005E
2006E
2007E
2008E
2009E
2010E
Remarks
133061.30
150000.00
165000.00
181500.00 199650.00 219615.00 Sales Growth 10% beyond 2006
Gross Rev (Op Rev)
85.95%
114359.79
128917.80
141809.58
155990.53 171589.59 188748.54 Based on Current % of Sales
SGA
73.33%
97578.64
110000.40
121000.44
133100.48 146410.53 161051.58 Based on Current % of Sales
EBITDA
12.61%
16781.16
18917.40
20809.14
22890.05
25179.06
27696.96 Based on Current % of Sales
Depex
2.89%
3848.77
4338.72
4772.59
5249.85
5774.84
6352.32
EBIT
9.72%
12932.39
14578.68
16036.55
17640.20
19404.22
21344.64 Based on Current % of Sales
Interest
1.95%
2595.61
2926.03
3218.63
3540.50
3894.54
4284.00
PBT & Minority interests7.77%
10336.78
11652.65
12817.91
14099.71
15509.68
17060.64 Based on Current % of Sales
8499.30
26% Taxes & 19.2 % Minority
Interest.Minority Interest
calculated from 2004 I/S
PAT
5664.55
6385.65
7024.22
7726.64
9349.23
% of Sales based on assumption that
Depex is 10 % of Fixed Assets
Based on Current % of Sales
49
Exhibit 38:
Forecasted Consolidated Income Statements
2005E
133061.30
114359.79
98378.64
15981.16
3848.77
12132.39
2009E
226446.88
196778.65
168919.90
27858.74
6846.71
21012.03
2010E
255790.78
222753.78
191439.24
31314.54
7799.35
23515.19
Interest
2595.61
3034.78
3408.94
3873.54
4477.38
PBT & Minority interests
9536.78
10843.90
13152.60
14685.41
16534.66
PAT
5263.79
5980.50
7294.64
8199.89
9224.13
Dividend/Share
0.80
0.80
0.80
0.80
0.80
Dividend
1777.60
1777.60
1777.60
1777.60
1777.60
Increase in Ret. Earnings
3486.19
4202.90
5517.04
6422.29
7446.53
NOTE: The consolidated Income statement is made based on 10% growth for Non-Canadian operations beyond 2006
5070.82
18444.37
10042.42
0.80
1777.60
8264.82
Sales
Gross Rev (Op Rev)
SGA
EBITDA
Depex
EBIT
2006E
155000.00
133617.80
115200.40
18417.40
4538.72
13878.68
2007E
173750.00
150034.58
128350.44
21684.14
5122.59
16561.55
2008E
196812.50
170384.28
145962.98
24421.30
5862.35
18558.95
Exhibit 39:
Forecasted Consolidated Balance Sheet
Remarks & Assumptions
Cash
2005E
14280.86
2006E
14864.81
2007E
15355.95
2008E
16332.34
2009E
15994.74
2010E
16622.70
AR
10936.54
12739.73
14280.82
16176.37
18612.07
21023.90
Inventories
12898.52
14068.49
16071.92
17800.17
20807.29
23713.95
Other Current Assets
Total Current Assets
1531.12
39647.05
1783.56
43456.59
1999.32
47708.01
2264.69
52573.57
2605.69
58019.78
2943.35
64303.89
Fixed Assets
Total Assets
40037.78
79684.82
44950.00
88406.59
50387.50
98095.51
57075.63
109649.20
65669.59
123689.38
74179.33 Fixed Assets/ Sales = 0.29. Same as of now.
138483.22
Current Liabilities
19959.19
23250.00
26062.50
29521.88
33967.03
38368.62
Long Term Liabilities
Equity
L+OE
10009.44
49716.19
79684.82
11237.50
53919.09
88406.59
12596.88
59436.13
98095.51
14268.91
65858.42
109649.20
16417.40
73304.95
123689.38
18544.83
81569.77
138483.22
Days Receivables = 30 days. Up 2 days from
current
Invertory Days = 32 for Non-Canadian
operations
& 67 days for Canadian operations upto 2007
and 45 days after 2007
Other Current Assets = 4 Days of Sales.
Same as Current
15% of Sales. Similar to current levels
LT Liabilities / Fixed Assets remains constant
at current level of 0.25
Exhibit 40:
Ratio Analysis for DragonCare Ltd
TA/Equity
Sales/Assets
PAT/Sales
ROE
Profit Growth
Debt/Equity
Current Ratio
Quick Ratio
EBIT/Interest
2005E
1.60
1.67
0.04
11%
13%
0.60
1.99
1.26
4.67
2006E
1.64
1.75
0.04
11%
14%
0.64
1.87
1.19
4.57
2007E
1.65
1.77
0.04
12%
22%
0.65
1.83
1.14
4.86
2008E
1.66
1.79
0.04
12%
12%
0.66
1.78
1.10
4.79
2009E
1.69
1.83
0.04
13%
12%
0.69
1.71
1.02
4.69
50
2010 E
1.70
1.85
0.04
12%
9%
0.70
1.68
0.98
4.64
Exhibit 41:
Consolidated Cash Flow Statement
2005E
Operations
Net Income
Add: Depreciation
Less:
Increase in AR
Increase in Inventory
Increase in Other Current Assets
Add: Increase in Current Liabilities
2006E
2007E
2008E
2009E
2010 E
5263.79
3848.77
5980.50
4538.72
7294.64
5122.59
8199.89
5862.35
9224.13
6846.71
10042.42
7799.35
1876.14
2026.04
81.45
2106.19
1803.18
1169.97
252.45
3290.81
1541.10
2003.42
215.75
2812.50
1895.55
1728.25
265.38
3459.38
2435.70
3007.11
341.00
4445.16
2411.83
2906.66
337.66
4401.59
Cash Flow from Operations
7886.51
10584.43
11469.46
13632.43
14732.18
16587.22
Investments
Increase in Fixed Assets
Cash flow from Investments
-9461.55
-9461.55
-9450.94
-9450.94
-10560.09
-10560.09
-12550.48
-12550.48
-15440.68
-15440.68
-16309.08
-16309.08
Financing
Increase in Long Term Liabilities
Less: Dividend
CF from Financing
2774.44
-1777.60
996.84
1228.06
-1777.60
-549.54
1359.38
-1777.60
-418.23
1672.03
-1777.60
-105.57
2148.49
-1777.60
370.89
2127.4
-1777.60
349.83
14859.056
-578.19
14280.86
14280.9
583.94
14864.81
14864.8
491.15
15355.95
15356.0
976.39
16332.34
16332.3
-337.60
15994.74
15994.7
627.97
16622.70
Beginning Cash
Net Cash Flow
Ending Cash
Exhibit 42:
Ending Cash Balance Projection for DragonCare Ltd
17000
16500
000s of $
16000
15500
15000
14500
14000
13500
13000
2004 E
2005E
2006E
2007E
Year
S1
2008E
2009E
2010 E
51
Exhibit 43:
Profit Contribution of DragonCare Canada to performance
of DragonCare Ltd.
12000.0
000's of Singapore $
10000.0
8000.0
6000.0
Total Company Profits
Profit from DragonCare Canada
4000.0
2000.0
0.0
-2000.0
2005E
2006E
2007E
2008E
2009E
2010 E
Year
Exhibit 44:
Breakeven Sales Calculation
2005
Fixed Costs
Depreciation
Minimum Marketing Expenses
Overheads
SGA
Total Fixed Costs
Variable Costs
Matl + Transport /Unit
Other Variable Costs/Unit
Total Variable Cost/Unit
Contribution/Unit
Breakeven Sales (000's Units)
Breakeven Sales (000's SGD)
Women's TCM Market Size (Before
Distributor and Retailer Commissions)
Breakeven Market Share
$
2006
2007
2008
2009
2010
200.0
2500
1000
3500
3700.0
350.0
3950.0
1300
5250.0
5600.0
612.5
7487.5
1700
9187.5
9800.0
1071.9
14078.1
2000
16078.1
17150.0
1447.0
19405.5
2300
21705.5
23152.5
2.5
5
7.50 $
$
17.50 $
211.43
$ 5,285.71 $
126951
4.2%
2.5
5
7.50 $
2.5
5
7.50 $
2.5
5
7.50
17.50 $
17.50 $
17.50 $
320.00
560.00
980.00
8,000.00 $ 14,000.00 $ 24,500.00 $
17.50
1323.00
33,075.00
152341
5.3%
2.5
5
7.50 $
175193
8.0%
197968
12.4%
217764
15.2%
52
ANNEXURE:
ADDITIONAL LIST OF SOURCES
TRADE FACILITATION OFFICE CANADA
56 Sparks Street, Suite 300
Ottawa, Ontario, Canada K1P 5A9
Tel: (613) 233-3925
In Canada: 1-800-267-9674
Fax: (613) 233-7860
e-mail: tfoc@tfoc.ca internet site: www.tfoc.ca
DEPARTMENT OF FOREIGN AFFAIRS AND
INTERNATIONAL TRADE
Information Services (SXCI)
125 Sussex Drive, Ottawa, Ontario K1A 0G2
Tel: 1-800-267-8376
Fax: 1-613-996-9709
e-mail: enqserv@dfait-maeci.gc.ca
For e-mail requests, please include your name, telephone number and return address.
internet site: http://www.dfait-maeci.gc.ca
CANADIAN ASSOCIATION OF IMPORTERS
AND EXPORTERS
438 University Avenue, Suite 1618
Toronto, Ontario, Canada M5G 2KB Tel: (416) 595-5333
Fax: (416) 595-8226
internet site: www.caie.ca
CANADIAN GENERIC PHARMACEUTICAL
ASSOCIATION
Head Office
4120 Yonge Street, Suite 409
Toronto, Ontario, Canada M2P 2B8
Tel.: (416) 223-2333
Fax: (416) 223-2425
Montreal Office
1180 Drummond, Suite 400
Montreal, Québec, Canada H3G 2S1
Tel.: (514) 393-3728
Fax: (514) 393-1024
internet site: www.cdma-acfpp.org
CANADIAN HEALTHCARE ASSOCIATION
17 York Street
Ottawa, Ontario, Canada K1N 9J6
Tel: (613) 241-8005
Fax: (613) 241-5055
internet site: www.cha.ca
CANADA CUSTOMS AND REVENUE AGENCY
internet site: www.ccra.gc.ca/tariff
53
ANNEXURE: ADDITIONAL LIST OF SOURCES
CANADIAN HEALTH FOOD ASSOCIATION
550 Alden Road, Suite 205
Markham, Ontario, Canada L3R 6A8
Tel: (905) 479-6939
Fax: (905) 479-1516
internet site: www.chfa.ca
CANADIAN HOMEOPATHIC PHARMACEUTICAL ASSOCIATION
408 Queen Street, Suite 105
Ottawa, Ontario, Canada K1R 5A7
Tel: (613) 594-5965
Fax: (613) 235-5866
internet site: www.chpa-aphc.ca
CANADA’S RESEARCH BASED PHARMACEUTICALS
ASSOCIATION (formerly Pharmaceutical Manufacturers’
Association of Canada)
55 Metcalfe Street, Suite 1220
Ottawa, Ontario, Canada K1P 6L5
Tel: (613) 236-0455
Fax: (613) 236-6756
internet site: www.canadapharma.org
HEALTH CANADA
A.L. 0900C2
Ottawa, Ontario, Canada K1A 0K9
Telephone: (613) 957-2991
Fax: (613) 941-5366
internet site: www.hc-sc.gc.ca
Has links to the Canadian Institute for Health Information under the
Health Care section (www.cihi.ca)
INDUSTRY CANADA
Communications and Marketing Branch
Second Floor, West Tower
235 Queen Street, Ottawa, Ontario, Canada K1A 0H5
internet site: www.strategis.ic.gc.ca
(Trade Data Online)
NON-PRESCRIPTION DRUG MANUFACTURERS ASSOCIATION
OF CANADA
1111 Prince of Wales Drive, Suite 406
Ottawa, Ontario, Canada K2C 3T2
Tel: (613) 723-0777
Fax: (613) 723-0779
internet site: www.ndmac.ca
PATENTED MEDICINE PRICES REVIEW BOARD
Box L40, Standard Life Centre
333 Laurier Avenue West, Suite 1400
Ottawa, Ontario, Canada K1P 1C1
internet site : www.pmprb-cepmb.gc.ca
54
55