Quality
•Safety
•Efficacy
•Research
•Brand
Service
Health
•TCM Clinics
•Longevity
•Consultancy
•Immunity
•Helplines
•Energy
The Ivey Gurus
Manoj
Smita Saurav Ashwat
Destination Canada!!!
Why Canada??? -> High GDP Growth
Canada led the G-7 in growth over the 2000-2003 period
and is expected to remain a top performer between 2004 and 2006.
Real GDP Growth %
Forecasted GDP Growth %
2000-2003
2004-2006
4
3.5
3.1%
3.5
3
2.4%
2.5
3.8%
2.6%
3 2.8%
2.0%
2.5
2.1%
2
1.3%
1.4%
1.5
2
1.7% 1.6%
1.5
1.0%
1
2.8%
2.7%
1
0.5
0.5
0
0
Canada
USA
UK
France
Italy
Germany
Japan
Canada
USA
Source: OECD Economic Outlook, Dec 2004
UK
France
Italy
Germany
Japan
3
Why Canada??? -> Lowest Overall Business Costs
Canada is the least costly among 11 major economies of the world.
It leads the G7 countries in quality of life, business environment, and cost of living.
It has a corporate tax advantage of 2.4% over the US
Overall Business Costs
Index : U.S. = 100
Canada
Australia
U.K.
Italy
France
Luxembourg
U.S.A.
Iceland
Netherlands
Germany
Japan
60
80
100
120
Source: KPMG Competitive Alternatives G7-2004 Edition
140
4
Why Canada??? –> Macro Analysis
Strong dollar value
High per capita GDP
Low taxes
Low interest rates
Low inflation
Canada-Singapore Free
Trade Agreement
Increasing awareness of
TCM products
High Chinese immigrant
population
Industry Analysis
Attractive Market
Total Canadian herbal medicine market
size is SG$1048 million.
20% annual growth
Low Barriers to Entry
Average Competitive
Rivalry
Medium Threat of
Substitutes
Liberal government policies
Growing demand for TCM
No major brand
Ayurvedic medicines
Allopathic medicines
Non-prescription drugs
Kaiser Pharmaceuticals, Herbal
Comfort Products, A World of
Good Health.
Market share < 5%
Selection Criteria for Operating Model
PRIMARY
SECONDARY
Low Risk
High Feasibility
High Profit
Fast Implementation
High Control
Low Investment
Evaluation of Entry Strategy
Joint Venture
Export
Direct Investment
Risk, Return and
Control Filter
Direct
Exports
Evaluation of Manufacturing Alternatives
Production in
Singapore
New production
facility in Canada
CRITERIA
P
R
I
M
A
R
Y
Low Risk
High Profit
High Control
High Feasibility
Fast Implementation
Low Investment
OTHER FACTORS
Volume Flexibility
Coordination between
R&D and Production
S
E
C
O
N
D
A
R
Y
Evaluation of Distribution Alternatives
Selling to
distributors
Selling directly to
retailers
CRITERIA
P
R
I
M
A
R
Y
Low Risk
High Profit
High Control
High Feasibility
Fast Implementation
Low Investment
OTHER FACTORS
Resources Required
Simple Administration
S
E
C
O
N
D
A
R
Y
Operating Model
TCM
Practitioners
DragonCare Canada
Retail Pharmacies
Manufacturing Sites Shipping
Canadian Distributor
in Singapore/Malaysia By 3rd Party
Retail Pharmacies
Retail Pharmacies
Information Flow
Material Flow
Customers
Implementation plan
Understand Licencing and
Incorporation Requirements
2006
2005
Top Management Hiring
Incorporation
Product Licencing
Site Licencing
Production of 1st Batch
Shipping from Singapore to Canada
Planning of Capacity
Expansion
Shipping Supplier Sourcing
Launch
Sourcing Canadian Distributor
Marketing Planning and Promotion
Activity. Website Design and Building.
Capacity Expansion Activities
May 20 May 31 June30 July 15
Aug 31
Oct 15 Oct 31 Nov 15
Dec 31
Jan 15
Long Term Expansion Plan
Jul – Dec 2011:
Jan 2006:
Mar – Oct 2009:
DragonCare Canada
goes operational.
Launch of “HealthCare
For Women” products
2
0
0
5
June 2005:
DragonCare Canada
registered and set up
in BC and Alberta.
2
0
0
6
2
0
0
7
DragonCare Canada sets up
a “Concept Store” in Vancouver.
DragonCare goes east.
It 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 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
2011-2012:
DragonCare sets up
Manufacturing unit in
Vancouver.
Plant to cater to Canadian
And US markets.
Market Segmentation
Income > $35,000
Gender = Women
Users of natural
health products
Age > 15
10.16m
5.19m
4.7m
15.6m
Geography (BC and
Alberta)
1.13m
Target market
size = SG$213
million
Product
 Women’s healthcare products
- For immunity development and nutritional benefits
 Packaging
- Sturdy and heat sealed
- Conforming to Consumer Packaging and Labeling Act
- Consistent quality
 Labeling
- Dual language
- Safety instructions
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
Information in French
Price
Value Based Pricing Strategy
DragonCare
prices $32 to $35
Willingness to spend on herbal medicine is
increasing
Higher disposable income for alternative
medicine
Demand relatively inelastic to price
Current price range
in TCM industry $21 to $35
High price aligns well with premium
positioning
Promotions – Pull Strategy
High-impact, low-cost pull-strategy vehicles
Advertising
 Commercials on Cable TV
 Advertisements in women’s
health magazines such as
Chatelaine.
 Billboards near women’s
health clubs & pharmacies.
Public Relations
 Sponsorship of
women’s charity
events
 Annual trade shows
 Budget $185,000
 Advertisements on radio
and in newspapers
 Budget $1.37 Million
Budget = $1.54 Million
Blogs
Discussions of herbal
products on blog websites
Promotions – Push Strategy
Sales Promotions
 Free samples to TCM
practitioners
 Value packs
 Discount coupons
(5-10%) for the
subsequent purchase
In-store Promotions
 Trade discounts
 Periodic campaigns
 Budget $150,000
 Free DragonCare
accessories – key
chains, pens and mugs.
 Budget $655,000
Direct Mail
 Focused direct mail
campaign to target high
potential customers
 Lists available from
women’s health clubs
and Chinese proprietary
medicine societies
 Budget $80,000
Budget = $0.885 Million
Distribution
Distributors
Channels
Natural Health
Product Stores
Pharmacies
TCM Practitioners
Primary distribution channel
Secondary channel
Tertiary channel to
tap new adopters
Organization Plan
Vision Statement
“To be a global healthcare company specializing in traditional Chinese medicine”
Mission Statement
“Caring for humanity by providing the traditional route to a healthy life”
Values
• Focus
•Quality
•People
•Research
•Style
•Position
•Reward
– Our customers
– Superior products
– Very caring
– Path breaking
– Strong teamwork.
– Leader
– Recognition and security
Management Structure
Group Chairman
Singapore Management
Direct Reporting
Managing Director
Functional Reporting
Chief Scientist
VP- Sales and Retail
VP- Finance
Canada Management
GM Canada
Finance
Manager
Finance Dept
Logistics
Manager
VP- Manufacturing
Marketing
Manager
H.R Manager
Logistics Dept
C.R.M Dept
Marketing Dept
R&D Co-ordinator
Sales Projections
Sales Projections
Market Share Projections
(In 000’s of SG $)
40000
36175.8
18.00%
35000
16.00%
30000
14.00%
26796.8
13.5%
12.00%
25000
10.00%
20000
15312.5
15000
10000
16.6%
8.7%
8.00%
8750
6.00%
5000
5.7%
3.9%
4.00%
5000
2.00%
0
2006
2007
2008
2009
2010
0.00%
2006
2007
2008
2009
Market share expected to steady at around 20-24%
Sales growth expected to slow down to 10% from 2010-2015
5% sales growth beyond 2015
2010
Net Profit and Cash Flow Projections
Cash Flow From Operations
Net Profits
(In 000’s of SG $)
800
724.8
(In 000’s of SG $)
693.2
1500
1460.6
964.5
600
1000
473.2
610.2
400
270.4
500
122.7
200
0
0
-500
-200
-646.4
-400
-1000
-400.8
-405.2
-1117.2
-600
-1500
2005
2006
2007
2008
2009
2010
2005
2006
2007
2008
Assumptions
 Sales of $ 5 Million in 2006
 75% yearly sales growth upto 2009 and 35% in 2010
2009
2010
Sensitivity Analysis
Sensitivity Analysis
Profits (in 000's of SG$)
Sales Growth Rates
30%
40%
50%
60%
75%
80%
90%
2005E
-401
-401
-401
-401
-401
-401
-401
2006E
-405
-405
-405
-405
-405
-405
-405
2007E
201
216
232
247
270
278
294
2008E
261
303
348
396
473
501
558
2009E
340
424
522
633
724
757
828
Worst Case
Best Case
Inference
Profitable in 2007 even with low first year sales and low growth rates
Reasoning
Breakeven sales volume = Only SG$ 5.3 million
Breakeven market share = Only 5.2%
Net Present Value
NPV of DragonCare Canada
(In 000’s of SG $)
WACC
NPV
5209
7%
8%
9%
10%
11%
12%
13%
Terminal NOPAT Growth Rates
1%
2%
3%
4%
5%
12831 12985 13140 13294 13449
9401
9523
9645
9767
9889
6844
6942
7040
7138
7236
4890
4970
5050
5129
5209
3367
3433
3498
3564
3630
2161
2216
2270
2325
2379
1195
1240
1286
1331
1377
6%
13603
10011
7334
5289
3695
2434
1423
Assumptions
 Weighted Average Cost of Capital (WACC) = 10%
 NOPAT growth rate (beyond 2015) to calculate terminal value = 5%
How Much Money Will We Need ???
(In Millions of SG $)
3.5
3.33
3
2.72
2.5
Funding requirement for
Working Capital &
Operating expenses.
1.9
2
1.45
1.5
1
1.12
1.08
0.65
0.5
0
0
2007
2008
0
0
Capital investment
requirement - mainly for
capacity expansion &
investment in fixed
assets.
0
2005
2006
2009
2010
 A total of 12.25 million SG$ over then next six years in a phased manner.
 However, bulk of the investment requirement is in 2009 & 2010.
Sources and Application of Funds
Sources
Applications
DragonCare Ltd’s current
excess cash balance
Working capital and
operating expenses
Bank loan from
current bank
Capital investment
Reasoning
 Leverage increases only slightly from 1.6 to 1.7
 Comfortable interest coverage (EBIT/Interest = 4.6 to 4.7)
 Interest Rates in Singapore have been stable at 5.3 – 5.5%
 Phased funding requirement ensures that DragonCare is not burdened
 Ensures steady ending cash balance ($14- 16 Million)
Risks
Threat Level
Mitigation Steps
High working
capital requirements
High
Focus on supply chain efficiency
and inventory management
New environment
High
Hire Canadians with experience
in the herbal products industry
Risks
Regulatory risks
Medium-High
Develop good relations with
government and a premium brand
Competitive risks
Medium-High
Be the first mover and
lock in major pharma-retailers
Financial risk
Medium
Acquiring loans in phases
Forex fluctuations
Medium
Hedging
DragonCare Rules Canada
Market leader with 16.6%
market share by 2010
Sales of $ 36 million
14% of global sales by 2010
#1 TCM brand in Canada
31% ROI in 10 Years
Net Profits > $ 0.6 million
7% of total profits by 2010
Q&A
SLIDES
FOR Q&A
Competitive Analysis
Average Competitive Rivalry
 Kaiser
Pharmaceuticals
- Focus on USA
- Spill over effect in Canada
- Sells through Golden Flower Chinese
Herbs (GFCH) company in US and Canada
- GFCH sells only directly to TCM
practitioners

A World of Good Health and Herbal Comforts Products
- Cater mainly to Chinese immigrant population
- Limited products
- Not specifically targeting women
- Sell only through online channel
Market Size
Canadian NHP Market
SG $ 2620 Million
Herbal Medicine Market
SG $1048 Million
DragonCare to target
this market with its
TCM products
Why Canada??? -> Low Labour Costs
Total Labour Costs, U.S.=100
• Total payments for Canadian statutory
and other benefits are 29% of salary
and wages compared to 32% in the
U.S.
Index
• Lowest labor cost among G-7 nations
160
140
120
100
80
60
40
20
0
139
134
101
100
96
92
80
Source: KPMG Competitive Alternatives G7-2004 Edition
Employee Benefits* as a % of wages
70
59
57
52
60
49
50
32
29
30
20
10
Source: KPMG Competitive Alternatives G7-2004 Edition
Ca
na
da
.
U.
S
Ja
pa
n
.
an
y
G
er
m
U.
K
ly
0
Ita
Statuatory Benefits
33
40
Fr
an
ce
Other Benefits
(%)
*
34
Why Canada??? -> Low Production Costs
Manufacturing Unit Labour Cost Index
$U.S. Basis
110
• Growing productivity,
skilled workers, and low
labour costs make
businesses competitive.
Index 1992=100
100
90
80
70
60
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
Year
Source: U.S. Department of Labor, Bureau of Labor Statistics, September 2004
35
Why Canada??? -> Low Inflation & Low Interest Rates
Inflation
4
Year-Over-Year % Change
• Canada’s targeted inflation rate is
locked between 1% to 3% and
has been extended until 2006.
- Over the past five years,
Canadian inflation averaged
2.4%, lower than the U.S..
3
2
1
0
Sources: Statistics Canada and the Federal Reserve Bank of St. Louis, January 2004
Long-Term Bond Yields
%
%
10
• Canada's excellent fiscal
situation and low inflation has
led to lower interest rates.
10
8
8
5
5
3
1999
Daily Yields
2000
2001
2002
2003
2004
3
1999
2000
2001
2002
CANADA: Government of Canada 10-Year Bond: December 24, 2004.
U.S.A.: U.S. Treasury, Constant Maturity 10-Year Bond: December 24, 2004
2003
2004
36
Why Canada??? -> A Tax Advantage
• Canadian
locations compare
well
internationally in
terms of statutory
corporate income
tax rates.
Corporate Income Tax Rates
46.6%
44.1%
41.6%
• Firms in Canada
have a growing
income tax rate
advantage over
U.S. firms.
• Elimination of
capital tax helps
increase tax
advantage to 3.4
percentage points
by 2008.
40.0%
39.4%
37.7%
2000 2001 2002 2003 2004
36.6%
3.4%
2008
Combined average federal-provincial and federal-state corporate tax rates including capital tax equivalents.
Excludes reduced rates of provincial tax on manufacturing and processing activities and the tax rate
reductions for manufacturing activities contained in the American Jobs Creation Act of 2004.
Source: The Federal Budget, Finance Canada, March 23, 2004
37
Evaluation of Retail Alternatives
Use existing retailer
network
CRITERIA
Low Risk
High Feasibility
Fast Implementation
Low Investment
OTHER FACTORS
Resources Required
High Margins for DC
Simple Administration
Setup chain of retail
stores
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
Product Positioning
Dragon Care Product Positioning
Brand Image
Dragon Care
Competitors
Scientifically Researched &
Developed Products
Promotions
Influence on Consumer
Purchasing Habits
40
Promotions
36%
35
30
Pull
25
18%
20
5%
15
Family/Friends
Healthbooks
Practioners
Advertising
Push
Sales Promotions
Public Relations In-store Promotions
10
Blogs
5
0
Percentage Influence
Source: www.ndmac.ca
Direct Mail
Promotions - Budget for Advertisements
Acquisition cost
per customer in SG$
Budget Allocation
Sponsorships of Social &
Charitable Causes
10%
Free Samples to
Practitioners
1%
50
Trade Shows
- Health
2%
Magazines/Books
27%
45
Health Books
40
35
30
- Online Advts
5%
25
20
15
- Newspaper
12%
10
5
0
- Radio
10%
Online Ads
- Bill Boards
19%
- Cable TV
14%
Budget = $1.37 Million
Newspaper
Billboards
Radio
Cable TV
Leading Manufacturer of Traditional Chinese Medicines
Having established itself as the #1 brand in
Singapore, China, Hong Kong and Australia,
DragonCare Ltd is now introducing its
scientifically developed and tested traditional
Chinese medicines (TCM) in Canada.
DragonCare has been at the forefront of scientific
research developments in the field of TCM. Its
state-of-the-art research laboratories in
Singapore are widely acknowledged to be among
For the last 50 years, DragonCare Ltd has
been a leading traditional medicine
manufacturer and retailer based in
Singapore.
DragonCare’s products are scientifically
developed and tested for safety and efficacy.
DragonCare is an ISO9000 certified company and
its products have been certified by the Chinese
Medicine Practitioners Association of Canada.
DragonCare markets over 200 different
products under its brand name. Many of
these medicines are patented.
Singapore
– DragonCare’s Home
the best in the world.
Research
CMPA
Certified
– DragonCare’s Strength
Now in
CANADA!!!
www.dragoncare.ca
Cerebration
1-800-TCM-SAFE
TM
A Wellness Formula For Women
What do you want to be treated by: Chemicals or Nature ?
If the answer is nature, then IMMUNE+TM is what you need.
IMMUNE+ TM is a wellness formula for
women from the house of DragonCare, a
leading manufacturer of Chinese medicines.
CMPA
Certified
IMMUNE+TM is a 100% natural herbal
product made from a variety of Chinese
herbs such as Ginseng roots and flowers.
IMMUNE+TM has been scientifically proven to
be effective in developing the immune
system of women and providing them
nutritional benefits making them more
energetic.
Available at a
Pharmacy /NHP Store
close to you
A quality offerring from
www.dragoncare.ca
Cerebration
1-800-TCM-SAFE
Hiring Plan
Management Structure
Selecting GM Canada
from within Singapore
division.
Hiring function
heads for Canada.
Training newly hired
function heads in
Singapore.
May 20th 05
June 5th
June 30th
Hiring Marketing,
Finance, HR and
Logistics teams.
Aug 1st
Oct 15th
Return on Investment
10 Year Return on Investment
(In 000’s of SG $)
10- Year Return on Investment
Profit After Tax
PV of Profits
Investments
PV of Investments
Total PV of Profits
Total PV of Investments
Return on Investment in 10 years
2005
-401
-401
650
650
2888
9249
31%
2006
-405
-368
2570
2336
2007
270
223
1080
893
2008
473
356
1900
1427
2009
725
495
3300
2254
2010
693
430
2720
1689
2011
763
430
2012
839
430
2013
923
430
2014
1015
430
2015
1116
430
Ratios
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 2009E 2010 E
1.66
1.69
1.70
1.79
1.83
1.85
0.04
0.04
0.04
12%
13%
12%
12%
12%
9%
0.66
0.69
0.70
1.78
1.71
1.68
1.10
1.02
0.98
4.79
4.69
4.64
Custom Duties
TCM products come under classification : 3004.20.00.79
No custom duties apply
Only PST applies
Source: 1) Departmental Consolidation Of The Customs Tariffs 2005
2) Health Canada Website