The background of Hai-O in Malaysia

The background of Hai-O in MalayansiaBackground of the CompanyHai-O is one of the jumper lead handed-down health c be companies in Malaysia, competing in the niche of traditional Chinese medicine. In the commencement exercise chapter, this paper forget discuss the background of the company in general to further embellish the championship nature of the company. This will provide the basis for the further discussion of Hai-Os business scheme.IntroductionHai-O is a local group of companies that operates in the business of traditional Chinese medicine. Hai-O host of Companies (the Group) visit of a few business di resources in the unified structure. All of these divisions operate in the core business of Chinese healthc are products that include herbal tea medicines, pharmaceutic products as swell as health food. Hai-O divisions include multi-level marketing (MLM) wholesaling, sell stores, as well as manufacturing. The Group has overly diversified into a few other industr ies such as advertising services and leasing of machinery.Problem StatementFor thousands of years, traditional medicine has been used in well-nigh communities for health cures and remedies. As it has been re-introduced in the modern world, there has been a growing debate on its effectiveness and potential side effects. This causes a rough cause for Hai-O as a traditional medicine provider.One of the ch completelyenges arise is the lack of international standards and evaluation methods for the efficiency of traditional medication because of international diversity of cultures and regions. As a result, many countries do not shake off national policies and regulations for traditional medicines. And there is excessively an issue of disparity in definition and classification for traditional medicine therapies. Some countries may define an herbal product as food supplement while others may accept it as herbal medicine, making international access and global product distributions a cha llenge to abide for Hai-O Group.There is also limitation for traditional medicines in terms of safety and quality. This is out-of-pocket to the complex nature of the methods for research and evaluation. For example, the safety and quality of finished herbal medicine products require tests on their resources which at one point can comprise hundreds of natural constituents. And the handling of these elements also needs to be evaluated.Products of traditional medicine are produced form natural elements which mostly are collected from wild aimts. scarcity of resources could also be an issue for business practices, not to mention the tender threat they might face because of destructing of natural resources.Aside from growing competitions from other multiplication of healthcare business, Hai-O opening move Berhad needs to address these challenges and issues in its strategy to exhilarate growth and expansion.Problem QuestionsWriting this case will aim to answer a few questions that ar ise in the problem statement above. Some of the questions areWhat is Hai-Os strategy to tackle the negative cases of TCM?Why does Hai-O employ its current business strategies?How does Hai-O plan to expand into international market?How does Hai-O operate on its growth despite the challenges and threats?Case Study ObjectivesObjective of this case study is to critically analyse the concern strategyStrategy formulation and theIssues and challenges faced by Hai-O Group in its business strategyUpon completion, this study will help to under(a)stand and clearly identify the business strategy of Hai-O Group. Through the case analysis, Hai-Os strategy formulation will be carefully examined and this will guide the finding of the critical issues and challenges of its business strategy.Companys OverviewHai-O was established in 1975, and has become a famous household name in Malaysia ever since. Originally, the Company offered an assortment of Chinese medicines and healthcare products. Much l ater, the business expanded and grew into Hai-O Group of Companies. It first made its way to Bursa Malaysia Securities Berhad in the year 1996, by being listed in the second board of Bursa Malaysia. The Group has 5 principal business that are multi-level marketing, wholesaling, retailing, manufacturing and medicinal clinics. The Group was the first traditional healthcare company listed on the stock exchange. It was listed into the main board of Bursa Malaysia on 2007. Expert in its niche, Hai-O has managed to build lengthy and efficient distribution net officiate for the past three decades.As part of its services, the Group is also practising integrated health services which combine the traditional Chinese medicine clinic services and non-decocted Chinese herbal consultation in their retail stores. These services were collaboration with its joint venture partner, Beijing Tongrentang Co Ltd, a hulking TCM provider in chinaware.History of Hai-OHai-O Enterprise Bhd was founded by Mr . burn Kai Hee in 1975. He was an assistant secretary-general of the Labour Party in 1960s and was arrested under the internecine Security Act (ISA) from 1965 to 1973. Only 28 years old at the time, Tan was optimistic despite the unfortunate circumstances. Finding job after the hold was not easy, and this leads him to the idea of organising other ex-comrades to venture into China trade. And so they set up Hai-O in 1975 and started operation in Klang. The business was soon became a term of mouth among friends and supporters. Due to a atomic reactor of hard work and high optimism, the Group was able to break even within the first year and all of the key historical and inspirational accomplishment took place itself in the first year it was introduced.Throughout many years of operation, the Group has earned a lot of awards for their remarkable performance. Such references are awarded to all the top performing companies within the Group. The Group take pride in its achievements whi ch take a crap help instil favourable confidence among its investors and customers. Awards and recognitions received by Hai-O Group areHai-O Enterprise Best Small Capitalisation Company (Malaysian embodied administration Index 2009) by minority Shareholder Watchdog Group (MSWG)Hai-O Enterprise Best Return to Shareholder Category First Runner Up Award by Malaysian Business CIMA Enterprise Governance 2009Hai-O Enterprise Best Under a Billion Award by Forbes Asia 2009Hai-O Enterprise Ranked no. 6 in line of longitude 100 Listed Company In Terms of Shareholder Values Creations 2008 by KPMG and The EdgeHai-O Enterprise Best Under a Billion Award by Forbes Asia 2008Hai-O Raya The Brand Laureate 2008-2009 under the Product Branding for Traditional Chinese medicate categoryHai-O merchandising Malaysian Business Ethics Excellence 2008 recognition certificate by Ministry of Domestic care and Consumer AffairsHai-O Raya Malaysian Business Ethics Excellence 200 recognition certifi cate by Ministry of Domestic Trade and Consumer AffairsHai-O Enterprise Best Under a Billion Award by Forbes Asia 2007Hai-O Marketing Outstanding Contribution Towards Developing Bumiputra Entrepreneurs 2007 recognition certificate by MECDHai-O Raya Superbrand 2003/2004Hai-O Raya Malaysian Book of Records Greatest Number of Traditional Healthcare Chain Stores in Malaysia 2001Hai-O Raya Golden Bull Award Malaysias Top 100 Outstanding SMEs 2003Hai-O Raya Enterprise 50 by SMIDEC and Deloitte 2003Top Malaysian Small Cap Companies (100 Jewels 2007) by OSK Investment chamfer BhdHai-O Marketing 13 Years Membership with Direct sell Association Malaysia 2007Diamond Club Award for Excellent Performance 2002, 2003, 2006GMP Status and ISO 9001certification by SG Global Biotech Sdn BhdU.S. FDA Facility Registration certificate by SG Global Biotech Sdn Bhd semen http//en.hai-o.com.myVision, Mission and Corporate ValuesThe Group ultimate goal is to become a premiere healthcare company in Ma laysia. Focusing on it, its vision reads We aim to become the premier healthcare company in Malaysia and thereby bringing the greatest value and pride to our customers, business partners, employees and shareholders. This explained that their vision of being the leading healthcare company are much focused on delivering value to each key element that furbish up up their business, internally and externally.Hai-O has strived over 35 years to take the brand name beyond the image of Chinese medicine. The Group genuine interests in healthy culture boost their spirit to stir humans well-being with the mission statement that reads We are committed to promoting healthcare culture and improving humans well-being.Such vision and mission is incorporated into the Groups corporate value. Hai-O means seagull in Mandarin. It is a metaphor that the Group will soar high and the Group incorporated its corporate values in the say seagull itself and the image of a seagull is embedded in the Groups com pany logo. Their 7 core values areSocial responsibility Hai-O strives to repay ball club by helping those in needs by actions and monetary support.Excellent service Hai-O strives beyond customers expectations to give excellent quality products and superior service.Attitude Hai-O strives to sustain a positive attitude in both dimensions of the business at any circumstances it faces.Unity Hai-O strives to unite its organization as one immense family in Malaysian culture of different races to achieve its goals in the challenging business world.Growing Hai-O strives to capitalise on its competitive advantage and knowledge to get wind continuous improvement and growth.Loyalty Hai-O strives to be loyal to its business partners and its commitment to convey good results to the customers as well as the shareholders.Learning Hai-O strives to build a knowledge-based working environment by collecting its resources together to achieve goals to educate consumers on healthcare and to contribu te to the research and development in the biotechnology and pharmaceutical science.Figure 1 Hai-Os Company LogoImage source Adapted from http//en.hai-o.com.myStrategyOne of the obvious strategies to market its product was the Group formation of Hai-O Marketing Sdn. Bhd. in 1992. This subsidiary company is targeted to market Hai-Os products through multilevel marketing. Products that are sold through this company are health food, wellness and beauty products. This strategy of has boosted the Groups business substantially and has brought a huge exposure for Hai-Os brand into the consumer market. Although the business move has brought a giant impact, the Group fundamental strategies still remain in three main criteria choosing the right product, targeting the Bumiputra segment and venturing abroad.Hai-O sources raw materials for its product from the main land China. TCM market in China is saturated and the products are variety. But Hai-O is use to solitary select the right ones to bri ng into its product line. Only importing patented products that are approved by the Ministry of Health, the Group built its clients trust by selling genuine quality products at a fair price with Hai-O branding. In 2002, links to China were further consolidated in a compact with Peking Tongrentang, a renowned company with a 338-years history and is famous for working for the emperor during the Qing dynasty. Other than that, the Group also signed a furbish up distributorship agreement in 2007, with Yunnan Baiyao Group Co Ltd.Since the setting of its MLM division, Malay consumers have constituted a large segment of its market as well as its sales force, which has result in a remarkable transformation for Hai-O as a group. The concept of MLM suited the Bumiptra market very well. Famous product among the Malay consumer is the Pur Er tea which is considered as a wonder tonic with abundant health benefits ranging from removing toxins to improving blood circulation. Achieving reputation a mong Malay consumers has changed the Groups image from previously a mainly Malaysian Chinese trade. As a result, the brand is more accessible and well received by other citizen in Malaysia.As the king of traditional medicine is showing evident results in todays healthcare industry, the Group decided to take the business abroad by penetrating the lucrative markets of China and Indonesia. A joint venture company has been set up in Jakarta and has started business in August 2009. As for China, the Group is in the midst of obtaining the necessary rights and licences to promote Malaysias traditional medicines and health products such as Tongkat Ali, and Kacip Fatimah in its local market. Venturing into the international market is a strategy that the Group hope will help to expose their brand even further as well as promote traditional Chinese medicine to a higher level.Corporate StructureFigure 2 Hai-Os Corporate StructureSource http//en.hai-o.com.myWholesale DivisionAs a second larges t contributor to the Group, the wholesale division have secured exclusive agency rights for importing and distributing of more than 200 branded products from China under the company names Hai-O Medicine Sdn. Bhd., Kinds Resources Sdn. Bhd., Grand Brands (M) Sdn. Bhd., Chop Aik Seng Sdn. Bhd. and Vintage wine Sdn. Bhd. These products include a wide range of traditional Chinese medicines, teas and wines that are distributed through Hai-Os multi-distribution channels. These channels offer a broad access to Chinese checkup halls, hyper/ supermarkets, convenience stores, retail outlets and restaurants.Direct Selling DivisionThe direct selling division, also known as the MLM division has been the Groups fastest growing segment since it is first introduced in 1992. Operating under the company name Hai-O Marketing Sdn. Bhd., the division has a strong distribution force that helped the company to emerge as a leading local direct selling company. Hai-O Marketing Sdn. Bhd. is now serving ove r 34,000 distributorships, through more than 50 distribution centres throughout Malaysia. With the product intermix ranging from healthcare to household products, Hai-O Marketing Sdn. Bhd. also owns a subsidiary company, PT Hai-O Indonesia which took up a 60% stake in a joint-venture company with an Indonesian partner. The company has started business in August 2009, selling products manufactured from Malaysia.Retail DivisionThe Group has over 60 chain stores in major cities and towns crosswise Malaysia. These chain stores carry an extensive range of traditional Chinese medicines, teas, wines and other healthcare products. Operating under the company name Hai-O Raya Berhad, the Group also owns retail counters in some of major supermarkets namely Carrefour and AEON Jusco. These outlets provide consultations on herbs and TCMs by professional herb masters. Hai-O Raya Berhad also provides a franchise architectural plan for entrepreneurs who are interested in operating a professional T CM store. In 2002, the Group expanded to also offer integrated clinical service under the company name, Peking Tongrentang (M) Sdn. Bhd. This integrated clinic is a joint-venture between Hai-O and Beijing Tongrentang Co Ltd, the largest producer of traditional Chinese medicine in China. Besides that, the Group also owns another subsidiary company that offers extensive traditional Chinese medicine products and service, Hai-O Polaris (M) Sdn. Bhd.Manufacturing DivisionRealizing the importance and the fast growing demand of traditional Chinese medicine in the country, the Group made a decision to open up its own pharmaceutical manufacturing plant in 1994. Operating under the name SG Global Biotech Sdn. Bhd., it was the first traditional medicinal manufacturer that complies with the Good Manufacturing Practice (GMP) standards in the country. The companys obligation to quality assurance has obtained the qualification under ISO 9002 in 1999 and ISO9001 2000 in 2002.Its core businesses is producing and butt oning of herbal and other health products and SG Global is also active in a lot of research and development activities. The company overlap the technology and expertise with China and several local counterparts in Malaysia. Riding on the potential growth of the research and development area in herbal and traditional medicine in Malaysia, the Group extended its operation into another subsidiary that focuses on laboratory research to increase product innovation. QIS Research research lab Sdn. Bhd. is established to offer a full service in analytical laboratory, microbiology and chemical analysis of traditional medicine. QIS Lab is accredited to ISO 17025 by the Department of meter Malaysia (DSM) of the Ministry of Science and Technology.In the past years, the Group has also ventured in several other business segments. Other subsidiary companies include Seagull Advertising Sdn. Bhd., Hai-O acknowledgement and Leasing Sdn. Bhd., Sri Pangkor Credit and Leasing Sd n. Bhd., Hai-O Energy (M) Sdn. Bhd. and Hai-O Properties Sdn. Bhd. The Group other supporting businesses involved the leasing of machinery and equipment, advertising services, investment holding as well as insurance agency.Corporate GovernanceThe panel of directors of Hai-O Enterprise Berhad (the mount) embraces the value of the Malaysian Code of Corporate Governance which outlines the ethics and the best practices on corporate governance. In regards, the Board is dedicated to make sure that the corporate governance principles are well practiced and well observed throughout the operation of Hai-O Group in shape to ensure uprightness and professionalism within the organization to safeguard shareholders investment and value.Composition of the BoardThe Board of Hai-O Group is consists of 8 appendages, comprising of 3 decision maker conductors and 5 Non-Executive Directors. 4 of these Non-Executive Directors are supreme Directors who act as independent advisors. This composition meets the terms with the Listing Requirements of Bursa Malaysia Securities Bhd which requires one-third (1/3) of the Board to be Independent Directors.The Executive and Non-Executive Directors functions are defined clearly. The Executive Directors talent is to administer the Groups operations and execute the operational and corporate decisions while the Non-Executive Directors offer the Company with necessary opinions and decisions.Formulation of the Groups strategies and policies are shaped from the combination between the expertise of the Independent Non-Executive Directors and the skill and wisdom of the Executive Directors. If a conflict of interest is likely to arise, it is the obligation for the director concerned to declare his interest and withdraw from the process of the decision making.The same formula is tailored to the responsibilities between the Chairman and the Managing Director in order to maintain a balance of authority and accountability. The Chairman provides a g eneral leadership to the Board without restricting the principle of collective responsibility for Boards decisions. And the Managing Directors principal responsibility is to formulate the business strategies and to employ the corporate decisions as well as to administer the overall business operations. The Boards composition represents a mix of skill, knowledge and expertise that are significant to the activities of the Group.The Board meeting is held once every 3 months. The Board entrusted the nomination Committee with the necessary responsibilities to appoint and re-elect the directors. This committee is comprises of Independent and Non-Executive Directors and is responsible to recognize and pick potential new directors and propose nominations to the Board.The Board also recognizes that constant learning is critical for its members in order to gain insights into the state of economy, technological advances, regulatory updates and management strategies. Thus all the Directors of the Company have to complete the Mandatory Accreditation Programme (MAP) which is compulsory for the Listing Requirements of the Bursa Malaysia Securities Bhd. The Directors will continue to undertake other significant training programmes and the Continuing Education Programmes (CEP) to supplement and increase knowledge in the latest statutory and regulatory developments. This is also to assist them in keeping abreast with developments in the business environment in order to enable them to uphold their responsibilities more effectively.Directors RemunerationsA remuneration Committee was set up by the Board to manage the Executive Directors remuneration package. The committee members are majority consisting of the Non-Executive Directors. This remuneration package is based on the Groups results apart from the individual directors performance. The committee meeting is held frequently as required to resolve all aspect of remuneration as well as terms and conditions of service of the E xecutive Directors. Level of the remuneration is structured as such to motivate and encourage the Directors to serve the Group at the top of their performances. And the compensation for the Non-Executive Directors is subjected to the Boards decision as a whole. The fees for both the Executive and Non-Executive Directors are approved by the shareholders at the Annual oecumenical Meeting (AGM).Shareholders and InvestorsIt is important to public listed organizations to inform the current status of the Group to the shareholders, stakeholders as well as the general public. Hence, the Group has been keeping up a constructive and active communication policy which enables the management and the Board to communicate effectively with its shareholders. The Groups website, www.hai-o.com.my is one of the channels available for corporate information to assist shareholders and investors to treasure their investment decisions.The Groups AGM proceedings are open to all shareholders to promote tra nsparency. Shareholders are also invited to attend any Extraordinary General Meetings which are announced through circulars and notice of meeting whenever it occurs.Accountability and AuditAn Audit Committee is set up to manage the annual financial statements of the Group. This committee is responsible to ensure that the statements are complied with the requirements in the valid accounting standards in Malaysia under the Companies Act, 1965 as well as the Listing Requirements of Bursa Malaysia Securities Bhd.The committee is also accountable to establish an appropriate and unsophisticated relationship with the Groups internal and external auditors. The Board also recognizes the significant of financial controls, operational and compliance controls as well as risk management. Hence, the internal control system is designed to administer the risk of failure to accomplish business objectives.Board of DirectorsThe names and positions of Hai-O Enterprise Berhads executive officers (as of February 17, 2010) are listed belowTable 1 Hai-Os Board of DirectorsNamePositionY. Bhg. Tan Sri Osman S. CassimChairman, Independent Non- Executive DirectorTan Kai HeeManaging Director, Non-Independent DirectorDatin Sunita Mei-Lin RajakumarIndependent Non-Executive DirectorTan Keng strivingExecutive Director, Non-Independent DirectorChia Kuo WuiExecutive Director, Non-Independent DirectorY. Bhg. Dato Abdul Rani Bin Mohd RazalliNon-Independent Non-Executive DirectorLim Chin LuenIndependent Non-Executive DirectorQuek Ah BaIndependent Non-Executive DirectorSource Adapted from http//en.hai-o.com.myProfile of the Board of DirectorsY. Bhg. Tan Sri Osman S. Cassim(Chairman, Independent Non-Executive Director)Tan Sri Osman graduated from University of Malaya, Singapore with an Honors Degree in Arts. He later attended the Advanced Management Programmes by Harvard Business School, capital of Massachusetts in 1984. During his 30 years career in public sector, Tan Sri Osman used to serv e as Secretary General in the Ministry of Labour, the Ministry of Information, and Ministry of Home Affairs. He was elected as the Director General of the Public Services Department Malaysia in 1980. Later in 1988, he was appointed as the National advisor to the General Electric International (USA)Currently he is the Vice President in the Court of Fellows of Malaysia Institute of Management. Tan Sri Osman was also the Chairman of Southern Bank Berhad from 1990 to 2005. He joined Hai-O Group and become the Chairman on 31 January 2005. Tan Sri Osman is also the Chairman of the Remuneration and Nomination Committee of Hai-O Group.Tan Kai Hee(Managing Director, Non-Independent Director)Mr. Tan Kai Hee is one of the founders of the Group. He is also the main policy and decision-maker. Mr. Tan has more than 33 years of experience in the trading business. In August 2006, he attended China Market Study Tour Program which was carried out by Beijing International MBA, Peking University. Mr. T an is also an avid social worker for the past 35 years. As also a founder of Malaysia-China Friendship Association (PMC), Mr. Tan acts as the Secretary-General. He is also the founder of Malaysia-China Medicine Health Product Association (MCMHPA), Malaysia-China Chamber of Commerce (MCCC) and Malaysia Ru-Shang Social Association. Among others, Mr. Tan is also the Chairman in the Trading Services of the Malaysia China Business Council (MCBC) and the advisor for the Federation of Chinese Physicians and Medicine Dealers Association of Malaysia (FCPMDAM). Mr. Tan holds directorship in Hai-O Raya Bhd. as well as a few other private limited companies. He was selected to the Groups Board on 30 August 1975 and is also a member in the Remuneration and Investment Committee. Mr. Tan is the father of Ms. Tan Keng Song, who is the Executive Director of Hai-O Enterprise Bhd.Datin Sunita Mei-Lin Rajakumar(Independent Non-Executive Director)Graduated from University Bristol, United Kingdom, Datin Sunita holds a Bachelor Degree in Law. She is the Member of Institute of Chartered Accountants of England and Wales, earning her qualification certificate in 1994. She used to work for Ernst Young, London as the Audit Manager. She also used to be the Manager in RHB Sakura Merchant Bank, Kuala Lumpur. In addition, she used to work in Corporate pay as the Vice President at Petra Technologies and was appointed as the Director of Corporate Finance at Southern Plastic. She also used to work for MIMOS Berhad as the Venture Capital Consultant before joining the Groups Board on January 2009. Datin Sunita is also a member of the Groups Audit Committee.Tan Keng Song(Executive Director, Non-Independent Director)Ms. Tan Keng Song holds a Bachelor Degree in Commerce from University of Western Australia. Majoring in Marketing and Management, she used to work for UMW Group. She joined Hai-O Group in 2000 as the MIS Executive at Hai-O Raya Bhd. Later she was promoted to the head of the Groups IT and MIS division. Currently she is leading the Business Administration, MIS and Human Resources Department and is a member of the Investment Committee. Ms. Tan joined the Board on 2001. She is the daughter of Mr. Tan Kai Hee, the Managing Director of Hai-O Enterprise Bhd.Chia Kuo Wui(Executive Director, Non-Independent Director)Mr. Chia Kuo Wui obtained his Bachelor Degree in Accounting at Curtin University, Australia. Later he continued to earn his study MBA from Charles Stuart University at Help University College Kuala Lumpur. Mr. Chia joined Hai-O Group in the Corporate Planning and the Investor Relation Department. Holding key positions in some of Hai-O Groups, he also holds the directorships in a few other private limited companies. Mr. Chia Kuo Wui was appointed to the Groups Board on 14 November 2008.Y. Bhg. Dato Abdul Rani Bin Mohd Razalli(Non Independent Non Executive Director)Dato Abdul Rani obtained his Senior Cambridge authentication in 1952. He used to serve the Gove rnment Royal Custom Excise, Malaysia as the Deputy Director General. He later ventured into commercial business in the fields of shipments, transportation, warehousing, and manufacturing. Dato Abdul Rani joined Hai-O Group on 1995 as the Executive Director. He was also a member of the Investment Committee of Hai-O Group and was re-designated as Non Executive and Non Independent Director in 2003.Lim Chin Luen(Independent Non-Executive Director)Mr. Lim Chin Luen has been involved with the trading of Chinese traditional medicine and herbal products for over 15 years. He also owns a nourishing food and noodles stores in Singapore. Mr. Lim joined the Groups Board in December 1997. He was also a member of the Audit, Remuneration and Nomination Committee of Hai-O Group.Quek Ah Ba(Independent Non-Executive Director)Mr. Quek Ah Ba served as an Accountant and Operational Manager in many companies. He also served two of the Securities firms, Noone Co Sdn Bhd from 1980 to 1983, and C.S. Sec urities Sdn Bhd from 1986 to 1989. Mr. Quek was a member of Australia Society of Accountants (A.S.A.) and CPA (Australia). He joined Hai-O on 2001 and became the Chairman of the Audit Committee. In addition, Mr. Quek is also a member of the Nomination Committee.