Corporation
-- A Global Business Simulation
Presented by: John Doe
Jane Doe
Mary Jane
Company Background
DEEP BLUE INTERNATIONAL, INC
 A multi-divisional firm operating in
the highly competitive information
systems industry
Company Background
Deep Blue International, Inc.
SBU#1
Hardware
SBU#2
Software
SBU#3
Integrated MIS
Company Background
Two level decision making process
•SBU: President
•Parent corporation:
•CEO
•Board of Directors
Mission Statement
To be the market leader in the
information industry through the
establishment of competitive
advantages so as to increase the
value of the company.
Strategy
 Target on High-end product consumers
 Strategic development on “vertical”
applications
 Achieve competitive advantages by
Increasing marketing, operation
technology new product research and
HR investment.
Operation of SBU #1
 Pricing Strategy: High end and keep increasing
because of market demand and lost sales.
 Constant improvement and moderate more
expense than industry average in:
-Marketing Expenses
-Operations Technology
-Quality Budget
-New Product Research
-Human resource Budget
 Export Strategy : Start export to ASEAN (Area 2)
in Period 4, based on competitive advantages
already set up and little competition in ASEAN.
Final Result (SBU #1)
 Capacity: from 3610 to 3710 units (3% )
 Book value: from $3500 to $3600 (3% )
 Export: area 2, 15.1%
 Sales: from $ 1879 to $ 2518 (34% )
 Cost of sales: $913(49%) to $1053 (42%)
 Profit: $198 to $426 (215% )
 SBU profit/sales: from 11% to 17%
(All numbers in thousands)
Operation of SBU #2
 Pricing Strategy: competitive in high end
 Constant improvement and moderate
more expense than industry average in:
-Marketing Expenses
-Operations Technology
-Quality Budget
-New Product Research
-Human resource Budget
Operation of SBU #2
 Capacity expansion Strategy:
- Constant moderate expansion based on
market demand increase
- Major expansion in Period 6 based on
competitive advantage, lost sales and
demand increase
 Export Strategy:
- Export Area: MERSUR (4)
- Capacity availability
- Little competition in the market
Operation of SBU #2
Selling Price of SBU#2
600
580
560
540
520
500
480
1
2
3
4
5
6
Final Result (SBU #2)
 Capacity: from 4750 to 5225 units (10% )
 Book value: from $4253 to $4775(12% )
 Export: area 4, 15.7%
 Sales: from $2569 to $3239 (26% )
 Cost of sales: $1237(48%) to $1421(44%)
 Profit: $380 to $537 (41% )
 SBU profit/sales: 15% to 17%
(All numbers in thousands)
Operation of SBU #3
 Pricing Strategy: competitive in high end
 Constant improvement and moderate
more expense than industry average in:
-Marketing Expenses
-Operations Technology
-Quality Budget
-New Product Research
-Human resource Budget
Operation of SBU #3
 Capacity expansion Strategy:
- Conservative expansion from Period 1 based on
market demand increase
- sharp expansion in Period 2 based on competitive
advantages and lost sales
- moderate expansion in Period 4.
 Export Strategy:
- Export Area: NAFTA (1) and MERSUR (4)
- Capacity availability
- Little competition in these markets
Operation of SBU #3
Selling Price of SBU#3
600
580
560
540
520
500
1
2
3
4
5
6
Final Result (SBU #3)
 Capacity: from 5415 to 6545 units (21% )
 Book value: from $5762 to $6355 ( 10% )
 Export: area 1 , 12.7%




area 4, 12.8%
Sales: from $3376 to $3603 (7% )
Cost of sales: from $1631(48%) to $1594(44%)
Profit: $362 to $514 (42% )
SBU profit/sales: from 11% to 14%
(All numbers in thousands)
Result (SBU level)
SBU profit analysis
600
500
400
SBU1
300
SBU2
SBU3
200
100
0
1
2
3
4
5
6
Result (SBU level)
COGS percentage
0.49
0.48
0.47
0.46
0.45
0.44
0.43
0.42
0.41
1
2
3
4
5
6
Capacity Analysis
8000
7000
6000
5000
4000
3000
2000
1000
0
SBU#1
SBU#2
SBU#3
1
2
3
4
5
6
7
Capacity Analysis
Beginning Capacity
Ending Capacity
1 2 3
1 2 3
5415, 40%
3610, 26%
4750, 34%
3710, 24%
6545, 42%
5225, 34%
Problem Areas
Cash management
Sales forecasting
Pricing
Corporate Decisions
 Based on the SBU decisions


Sales forecast
Pricing
 Immature market


Domestic
International expansion
 Financial management
Capital Structure
 Capital Needs:





Expand capacity for each SBU according
to sales forecast in 1st period
Aggressively expand capacity of SBU#3 in
2nd period
Constantly Increase marketing, operation
technology and new product research
budget
Human resource expenses
Export & marketing abroad
Capital Structure
 Decision Criteria:



Increase shareholders’ value
Not dilute EPS and stock price
Keep reasonable D/E ratio
 Plan of action:



Borrow 1000 bank loan in 1st period
Borrow 400 bank loan and issue 2000 bond in 2nd
period
Pay back bank loan in the following period by using
internal generated cash flow
Ratio Analysis
Debt/Equity Ratio
2.50
2.00
1.94
1.69
1.67
1.50
1.51
1.21
1.13
1.00
0.50
0.00
1
2
3
4
5
6
Dividend Policy
 In 1st period, we kept the previous dividend
level
 We decreased the dividend payment in 2nd
period
 We decided to follow a constant amount plus
extra payment policy since 3nd period
 We started by paying $.03 and kept increasing
the level of dividend according to our operation
profits increase.
Dividend Policy
0.07
60
0.06
50
0.05
40
0.04
30
0.03
20
0.02
10
0.01
0
0
1
2
3
4
5
6
Div P/S
Dividend Payment
Incident Report (E)
 New Advertising Campaign in Period 5
 Emphasizes our presence in the market
in terms of growth in sales and profits.
 In major business publication and airline
or-board magazines.
 Response: Key decision makers in major
corp. are reached, smaller businesses
are missed.
Incident Report (F)
 New Business Tactics in Period 6
 Host a party and provide image building
items in export areas
 Cost: $ 15,000
 Effective promotion
 Legal promotion
Performance Evaluation
DEEP BLUE
INTERNATIONAL, INC.
Period 1 ----------- Period 6
Financial Statement
----balance sheet
Cash
909
Accounts Payable
1220
Accounts Receivable
2808
Annual Loan Payment
767
0
Annual Bond Payment
190
Current Liabilities
2177
Bank Loans due>12 months
6903
Short Term Investment
Current Assets
3717
Building & Equipment
21807
Bonds due>12 months
1712
Less Accum. Depreciation
7077
Total Liabilities
10792
Net Fixed Assets
14730
Common Stock
4000
Retained Earnings
3655
Total Equity
7655
Total Liabilities & Equity
18447
Total Assets
18447
Financial Statement
---- income statement
Sales Revenue
9360
COGS
4068
Gross Margin
Operation Expenses
5292
3815
EBIT(SBU Profits)
1477
Interest Expense
363
Other Expense
46
Income before Taxes
1068
Taxes
320
Net Income after Taxes
748
Dividends Paid
40
Retained Earnings
708
EPS
0.94
Competitive Advantages
SBU#1
marketing
SBU#2
SBU#3
168
153
225
184
192
241
operation tech.
91
115
123
135
145
153
new product
79
81
96
135
119
136
sales person
2.5
3
2
2
2.5
3
1.75
2
1.5
2
1.75
3
employee
turnover rate
9.7%
8.4%
9.7%
9.0%
9.7%
7.7%
defective goods
2.4%
2.3%
2.2%
2.1%
2.1%
1.8%
service person
Evaluation: Profitability
9500
9000
8500
800
57.00%
9.00%
700
56.00%
8.00%
600
55.00%
7.00%
500
54.00%
400
8000
7500
7000
1
2
3
4
5
6
Total Sales
Net Profit
6.00%
53.00%
5.00%
Gross Margin
4.00%
Profit Margin
300
52.00%
200
51.00%
2.00%
100
50.00%
1.00%
0
49.00%
0.00%
3.00%
1
2
3
4
5
6
Evaluation: Stock Price
Stock Price
30
25
20
15
23.15
10
510.01
14.03
15.34
3
4
27.56
8.82
0
1
2
5
6
Stock Price
Evaluation: EPS
EPS vs. P/E Ratio
40
1
35
0.8
30
25
0.6
20
Stock Price
P/E Ratio
0.4
15
10
0.2
5
0
0
1
2
3
4
5
6
EPS
Evaluation: Returns
12.00%
10.00%
8.00%
Return on Sales
6.00%
Return on Assets
Return on Equity
4.00%
2.00%
0.00%
1
2
3
4
5
6
Ratio Analysis
Current Ratio
4000
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
3500
3000
2500
2000
1500
1000
500
0
1
2
3
4
5
6
Current Assets
Current Liabilities
Current Ratio
Strategy Adjustment
SBU1
SBU2
SBU3
Period
Profit
Expense
Profit
Expense
Profit
Expense
1
198
1681
380
2189
362
3014
2
224
1753
222
2631
356
3795
3
283
1771
395
2535
461
3577
4
182
2077
423
2736
366
3507
5
408
2006
549
2543
505
3199
6
426
2092
537
2702
514
3089
Total
1721
11380
2506
15336
2564
20181
Profit/Cost
15.12%
16.34%
12.71%
Strategy Adjustment
 Initially, we wanted to strategically
expand SBU#3
 Based on the profit/cost efficiency
analysis, we change the strategy to
follow a more balance expansion plan
 In the latter period, we reduced the
capacity of SBU#3 by depreciation, while
kept the reasonable operation budget
Management Audit
Performance Summary
 How many times the team have a zero cash balance,







requiring an overdraft loan
1
How many times was there an excess amount of cash
that was not invested
5
How many period did you have lost sales
6
Total number of lost sales units
4449
Total capacity for all SBUs in the last period
15480
Total amount spent on market research
186
What are your total profits
4021
What was your average stock price
16.49
Q&A
Thanks a lot!
Good luck in the real world!!