IOI Corporation Upbeat on Indonesian Ventures

Background of IOI Corporation Berhad and its Indonesian ventures

IOI Corporation Berhad is optimistic that its Indonesia’s ventures will begin contributing significantly to the group within the short to medium term, especially on the back of the recent inauguration of the country’s new president Joko Widodo.

The fully-integrated upstream and downstream player in the palm oil industry currently has 89 estates totaling 174,061ha, with nine per cent located in Indonesia.

“We are always looking to expand our presence in Indonesia, given the republic’s attractive operational low costs and high yields. We expect higher contribution from our Indonesian investment with Bumitama Agri Ltd, as more of its young palm trees reach optimum production age,” said executive chairman Tan Sri Lee Shin Cheng during a press conference, here, yesterday.

“We have another company in Indonesia, PT Sawit Nabati Agro, and over the last three years, have planted 16,000ha. We expect to have a total of 20,000ha of oil palm plantations by year-end and this will help increase earnings in the near term,” he said.

Lee is unconcerned with the downward turn of the crude palm oil (CPO) price as it is part of its natural cyclical phase.

“With the anticipated record high soyabean corp harvest in the United States, we expect the CPO price to stay at the current level in the near term before trending higher towards year-end when palm oil production enters its seasonal low and Malaysia implements the B7 biodiesel mandate nationwide,” he said.

The group is in discussions with international players to expand its palm oil integrated business.

“We are in talks with international players as they have the technology that we are seeking but results of these discussions will not be reflected in the 2015 financial year,” said Lee.

IOI Corp started the construction of Johor-based 35,000-sq m factory in August 2013 through its joint venture with Japanese processed food and chemical maker Adeka Corporation’s Adeka Foods (Asia) Sdn Bhd and it was fully operational last month.

(a) Critically evaluate whether joint-ventures (JVs) between the Indonesian Bumitama Agri Ltd and domestic Malaysian IOI Corporation Berhad would benefit the two firms. (10 marks)

(b) Critically justify whether it is always good to be an early entrant into a foreign market in the context of IOI Corporation Berhad.(10 marks)                      

(a) Critically assess the TWO (2) fundamental contraints that multinational corporations like IOI Corporation Berhad usually face when competing in a global marketplace. (10 marks)

(b) Based on the case above, propose a suitable international business strategy for multinational oil palm companies in their foreign expansions to compete in the oil palm industry. (10 marks)

(a) Content theories of motivation are concerned with what motivates people and what needs do people seek in order to have work satisfaction. In this regard, apply Herzberg’s Two-factor Theory, one of the content motivational theories to examine how employees working with a multinational palm oil company are motivated. (10 marks)

(b) In your opinion, does the approach to ethnocentrism fit well into managing both the business activities and people of multinational companies like IOI Corporation Berhad? Justify your answer. (10 marks)

(a) Consider a merger between a foreign company and IOI Corporation. Following the merger, suggest the FOUR (4) steps involved in integrating the organizational cultures of these two groups of firms. (8 marks)

(b) Apply any FOUR (4) dimensions of Hofstede’s cultural framework to evaluate the organizational cultural values of a typical multinational company. (12 marks)

In the wake of globalization, the world is moving toward a more global economic system. Critically evaluate the implications of globalization on oil palm corporation operating in a global economy.(20 marks)