Founder's Diversification

Abstract

August 6th, 2010 evening – Founder Group Chairman, Wei Xin, sat in his office, reflecting on the afternoon's media session. Two days ago, Founder and Acer Group had jointly announced that Acer would rent 70 million USD worth of Founder PCs for 7 years, and be responsible for a majority of Founder's PC business, along with its related departments and employees. This news triggered heated discussions in the media, as many people were surprised. To dispel confusion, Wei and Vice President Fang Zhonghua held a public media session where Wei expressed Founder Group's strategic intentions. In 2009, the PC business had sold 3,000,000 units, had sales revenues of 6.5 billion RMB, and was #4 in domestic market share. However, its operating profit margin was only 4.99%.

Wei had noted, “In the past decade, the computer production business has never been a high profit margin business. If you do not develop core technology, but just assemble and sell the computer, there is no sustainable core competitive advantage. Founder must eliminate low profit businesses, and invest its energy and time into the PCB business lines, with its proprietary technologies which can enable high profit margins.”

Looking back, Wei reflected that it was not just IT, but also medical service & pharmaceuticals, securities, and real estate which were undergoing massive restructuring. How much diversification was needed? In the future, how should they balance investments between each business group?

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Resources

Exhibit 1 Founder Group 1998–2009 Main Business Revenues and Gross Profit (in billion RMB)

Year

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Main Business Revenues

7.45

8.43

6.69

6.88

8.73

16.12

22.08

24.49

29.31

39.52

42.14

47.47

Total Profit

0.15

0.16

0.30

0.29

0.33

0.83

0.86

0.85

1.19

3.69

2.81

2.32

Source: PKU Founder Group 2011 first Edition Mid-Term Notes Issuance Manual.

Exhibit 2 Founder Group 2007–2009 Operations Background

  • Individual Business Revenues & Profit Distribution (in billion RMB)

    Business

    2007

    2008

    2009

    Revenue

    Total Profit

    Gross Profit

    Revenue

    Total Profit

    Gross Profit

    Revenue

    Total Profit

    Gross Profit

    Amt

    %

    Amt

    %

    Amt

    %

    Amt

    %

    Amt

    %

    Amt

    %

    Amt

    %

    Amt

    %

    Amt

    %

    IT

    16.72

    42.30%

    0.47

    12.83%

    1.51

    23.76%

    17.85

    42.36%

    0.42

    14.99%

    1.52

    35.56%

    19.33

    40.73%

    .44

    18.93%

    1.59

    30.93%

    Medicine

    0.99

    2.50%

    0.07

    1.92%

    0.22

    3.52%

    1.10

    2.62%

    0.07

    2.39%

    0.26

    6.07%

    1.34

    2.82%

    .07

    3.15%

    .35

    6.83%

    Steel

    4.64

    11.75%

    0.16

    4.20%

    0.21

    3.38%

    5.84

    13.86%

    0.05

    1.60%

    −0.29

    −6.68%

    5.30

    11.16%

    .12

    5.05%

    −.09

    −1.74%

    Securities

    4.09

    10.34%

    2.67

    72.31%

    3.01

    47.96%

    2.17

    5.14%

    2.02

    72.01%

    1.05

    24.62%

    3.31

    6.97%

    1.39

    59.94%

    1.88

    36.64%

    Other

    13.08

    33.10%

    0.32

    8.74%

    1.35

    21.38

    15.18

    36.02%

    0.25

    9.01%

    1.73

    40.43%

    18.19

    38.32%

    .30

    12.94%

    1.40

    27.34%

    Total

    39.52

    100.00%

    3.69

    100.00%

    6.30

    100.00%

    42.14

    100.00%

    2.81

    100.00%

    4.27

    100.00%

    47.47

    100.00%

    2.32

    100.00%

    5.13

    100.00%

    Source: PKU Founder Group 2011 first Edition Mid-Term Notes Issuance Manual.

  • Other Business Revenue Sales Creation (in billion RMB)

    Business

    2007

    2008

    2009

    Revenue

    %

    Revenue

    %

    Revenue

    %

    Domestic Trade

    7.28

    55.62%

    8.45

    55.65%

    10.15

    55.79%

    International Trade

    5.02

    38.36%

    5.83

    38.37%

    7.00

    38.47%

    Real Estate Property

    0.74

    5.67%

    0.85

    5.62%

    .99

    5.44%

    Education Training

    0.05

    0.35%

    0.05

    0.36%

    .05

    0.29%

    Total

    13.09

    100.00%

    15.18

    100.00%

    18.19

    100.00%

    Source: PKU Founder Group 2011 first Edition Mid-Term Notes Issuance Manual

Exhibit 3 Founder Subsidiary and Joint Venture Enterprises' Basic Information

Company Name

Registered Capital (in thousand RMB)

Direct Investment Proportion

PKU Founder Industrial Development Company

10,000

100.00%

Founder Holdings Co., Ltd.(HK)

119,120

32.49%

Founder Industry Holdings Co., Ltd.

1,200,000

94.17%

Founder Securities Co., Ltd.

1,653,88

56.59%

Beijing PKU Founder College of Software Technology

5,000

100.00%

Founder Technology Holding Co., Ltd.

1,726,488

11.39%

Beijing PKU International HealthCare Group

1,200,000

70.00%

PKU Founder Investment Co., Ltd.

150,000

80.00%

Shenzhen Founder Microelectronics

435,830

63.77%

HK Founder Information Co., Ltd.

123,920

94.67%

Founder Training Center

230

87.00%

Beijing Daily Wisdom Management Consulting Co., Ltd.

5,000

10.00%

Kunshan HiTech Electronic Creative Arts Industry Development Co., Ltd.

7,600

19.00%

PKU Resource Group Co., Ltd.

200,000

25.00%

Founder International Leasing Co., Ltd.

163,000

10.00%

Dongguan Sanyuan Yinghui Investment Management Co., Ltd.

290,000

15.00%

Source: PKU Founder Group 2011 first Edition Mid-Term Notes Issuance Manual.

Exhibit 4 Founder Group Ownership Structure

Figure

Exhibit 5 Founder Group 2009 Organizational Structure

Figure

Figure

Exhibit 6 Founder Group and its Businesses Brand Logos

Founder Group Brand Logo

Figure

Founder IT Brand Logo

Figure

Founder Medical Service & Pharmaceuticals Brand Logo

Figure

Peking University Resource Group Brand Logo

Figure

Founder Securities Brand Logo

Figure

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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