A strategic management study for Duty Free Philippines

• Main Author: Sarmiento, Dominador A.
• Format: text
• Language: English
• Published: Animo Repository 2000
• Subjects: Retail trade > Philippine; Duty Free Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/3899
• Institution: De La Salle University

The objective of this study is to come up with a corporate strategic plan for Duty Free Philippines (DFP). The World-wide Duty Free Retailing Industry has been in existence for fifty (50) years. In the Philippines, DFP is already on its 12th year of operations. Just like the rest of duty free shops around the world, DFP operates in a very niche market-- international travelers. DFP however, is in unrivaled position as this is the only one given the franchise by the government through the auspices of Department of Tourism to operate duty free shops in all international airports in the country. The approach of my study basically begins with the definition of travel retail industry also referred to as duty free retailing. This type of business, operates in airports, in-flight and off-airports (within the airport's five kilometer radius zone). The special characteristics of this business is that- one needs to travel (abroad) first before the privilege of duty free shopping can be availed of. An overview on how duty free shops in the Philippine began, and the list of major (duty free shops at the Subic and Clark) and the minor player (large retailers in the country such as SM, Rustans, etc.) the company is competing with is given. An environmental scanning was made making use of Porter's Five Forces Model in order to have an understanding of the type of environment it is engaged in and the factors that threatened the existence of this industry. Forces such as threat of new entrants, rivalry among existing players, threat of substitute and the bargaining powers of buyers and suppliers were considered. A corporate profile of the company was also made underscoring the significant highlights of DFP's 11-year history, its triumphs and successes in the international arena, effects of the Asian turmoil that plagued the country in July 1997 up to its present effort to arise from financial distress and the future steps in order to embrace the challenge of impending trade liberalization of the national economy and the globalization of the world economy. A five-year historical performance of its operations was considered in the process to guide the management in the formulation of its financial strategies. Its strengths, weaknesses, threats and opportunities were spelled out in order to link these withy the overall operational strategies that it intends to pursue. Because of the financial crisis that struck the Asian region in July 1997, DFP incurred operating losses for the 1997 and 1998. To cope up with the crisis that resulted to its plummeting sales, it undertook several cost-cutting measures (i.e., manpower, reduction), divestment of its provincial operations (e.g., Laoag, Cebu, Davao and Clark), markdown on sales prices- all of these were swallowed in order to score positive income. However, its bold vision to become the leading duty free shop in Asia serves as the enabling factor that guides the newly installed management to modernize its systems of operations, to focus on its core competencies (best-sellers products such as chocolates, wines, cigarettes and perfumes), to improve its present facilities, to enter the on-line (internet business), to restructure its manpower and related compensation packages and to vigorously pursue a major change of its corporate image. The latter intends to reinforce the value added services it offers. The present management highlighted a number of its current and proposed strategies to eventually pursue its mission and vision for the company. The 7-S framework- style, staff, system, strategy, structures, skills and shared values were outlined in order to guide management in its implementation of these strategies. A personal assessment of these strategies was made on the light of my understanding on how to go about the successful implementation of these. An emphasis was made on how to reinforce its already key differentiating factors- absolute cost location advantage (being the only one authorized by the government to operate a duty free store in premier airports in the country) and quality retailing products and services. Various recommendations were given the appropriate justifications in order to improve the operations of its different functional divisions- finance, logistics, merchandising, human resources, administration and its management of information systems. A five-year financial projection was made capitalizing on the optimistic foresight that the national economy will soon improve. Factors such as inflation rate, currency rate, tourists' traffic/spending patterns/behavior, etc., were considered. Finally, the biggest challenge that Duty Free Philippines should be prepared for is the opening of retail sector to foreigners since the passage of Retail Trade Liberalization Act (RA 8762)) has made this possible. This challenge underscores the need on the part of present management to institute radical steps to effectively addressed this issue. This in effect will require the synergy of all forces involve in the value chain-- partnering with suppliers, buying, managing inventory, distributing inventory, store operations, marketing and selling. Each link of the chain should be unified by a shared vision focused on the delivering consumer-defined value, riveted on core competencies and oriented to performance results that meet the expectation of all stakeholders.