Wednesday 19 December 2012

TURNAROUND STRATEGY: A CASE STUDY OF THE SECURITIES INVESTMENT TRUST ENTERPRISE (UNIT TRUST) SECTOR IN TAIWAN



                                                TURNAROUND STRATEGY: 
A CASE STUDY OF THE SECURITIES INVESTMENT TRUST ENTERPRISE (UNIT TRUST) SECTOR  IN TAIWAN 

                                             MBA MANAGEMENT PROJECT 

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Abstract:

Businesses in the financial market are confronted with increasing challenges caused by unpredictable financial and market conditions. The Securities Investment Trust Enterprise firms (called Unit Trust firms in Western countries), in Taiwan experienced a financial crisis in June 2004 followed by a decline. The aim of this project is to examine the domestic SITE sector by interviewing people at all levels in the industry, and to
investigate successful turnaround tactics for domestic SITE firms.

With this purpose, 33 in-depth interviews are conducted. Interviewees include; fund managers from SITE firms who achieved successful turnaround, professional financial investors, industrial investors, and private investors, who buy funds for personal investment.

A broad discussion of the interview results is presented, and it is concluded that performance and marketing are the main influences for investors. It is also recommended that domestic SITE firms need to balance their fund portfolio and improve their risk control management, research work and internal resource integration.
A turnaround tactics model is proposed at the end, which consists of operational and strategic improvements in five respects: trust enhancement, R&D and diversification, performance, marketing and service.


TABLE OF CONTENTS

ABBREVIATIONS ........................................................................................................ X
GLOSSARY ................................................................................................................... XI

1. INTRODUCTION .................................................................................................. - 1 -
1.1 Project Background ......................................................................................... - 1 -
1.2 Outline of the Report ....................................................................................... - 2 -

2. HISTORICAL BACKGROUND .......................................................................... - 3 -
2.1 Pegged Currency Policy ................................................................................... - 3 -
2.2 Macro-economic Trends .................................................................................. - 4 -
2.3 Rapid Growth in Bond Funds and Structured Interest Rate Bonds ........... - 5 -
2.4 The Potential Risks of Bond Funds ................................................................ - 6 -
2.5 The Liquidity Crisis ......................................................................................... - 7 -
2.6 Government Intervention ................................................................................ - 7 -
2.7 Current Situation ............................................................................................. - 9 -

3. LITERATURE REVIEW .................................................................................... - 10 -
3.1 Introduction to Literature Review ................................................................ - 10 -
3.2 Internal Environment Management ............................................................. - 11 -
3.3 External Environment Analysis .................................................................... - 11 -
3.4 Turnaround Strategy and Management ....................................................... - 14 -
3.5 The Role of Marketing in Turnaround Strategies ....................................... - 18 -

4. METHODOLOGY ............................................................................................... - 19 -
4.1 Research Objectives ....................................................................................... - 19 -
4.2 Research Methods .......................................................................................... - 19 -
4.3 Sources of Secondary Data ............................................................................ - 20 -
4.4 Conceptual Framework of Interviews .......................................................... - 21 -
4.5 Sample Selection ............................................................................................. - 21 -
4.6 Research Sample ............................................................................................ - 23 -



5. RESEARCH FINDINGS ..................................................................................... - 26 -
5.1 Opinions and Perspectives from Professional Investors ............................. - 26 -
5.2 Opinions and Perspectives from Private Investors ..................................... - 31 -
5.3 Opinions and Perspectives from domestic SITE firms ............................... - 32 -
5.4 Chapter Summary .......................................................................................... - 36 -

6. DISCUSSION AND IMPLICATIONS ............................................................... - 37 -
6.1 External Environment Analysis .................................................................... - 37 -
6.2 Diagnosing the Cause of Decline ................................................................... - 40 -
6.3 Issues Arising From the Interviews .............................................................. - 42 -
6.4 Marketing Function ....................................................................................... - 46 -
6.5 Mergers and Acquisitions .............................................................................. - 47 -
6.6 Other Issues .................................................................................................... - 47 -
6.7 Chapter Summary .......................................................................................... - 48 -

7. RECOMMENDARIONS AND RESEARCH LIMITATIONS ........................ - 49 -
7.1 Proposed Turnaround Tactics ....................................................................... - 49 -
7.2 Limitations of the Research ........................................................................... - 52 -

8. CONCLUSION ..................................................................................................... - 54 -

Appendix A: Project Proposal ................................................................................. - 55 -
Appendix B: Interview Information – Groups One and Two .............................. - 59 -
Appendix C: Interview Information – Group Three ............................................ - 61 -
Appendix D: Interview Information – Domestic SITE firms .............................. - 62 -
Appendix E: Regulations of SITE Funds ............................................................... - 63 -
Appendix  F:  The  Issue  of  the  ‘Financial  Reform  Scheme’  in  Taiwan ................. - 64 -
Appendix G: Reference in GLOSSARY ................................................................ - 65 -

BIBLIOGRAPHY .................................................................................................... - 66 -


LIST OF TABLES



page
Table 2.1: The Comparison Between Bond Fund Yield and One-
year-Contract Bank Saving Rate 6
Table 4.1: Customer Structures of SITE Funds 21
Table 4.2: Interviewees in Groups One and Two 24
Table 4.3: Interviewees in Group Three 25
Table 4.4: Interviewees in Domestic SITE firms 25
Table 6.1: The Reasons of Fund Size Growth and Decline 43


LIST OF FIGURES
 
page
Figure 2.1: The Historical Change Of Structured Products in the 8
Bond Fund Sector
Figure 3.1:   The PESTEL Framework 12
Figure 3.2: Porter’s  Five  Forces  Framework 13
Figure 4.1: The Five Largest Taiwanese SITE Firms by Total 22
Fund Size
Figure 4.2: The Five Largest Taiwanese SITE Firms Excluding 22
Bond Funds
Figure 6.1: Macro-environment Influences on SITE Firms Using 38
the PESTEL Framework
Figure 6.2: The Five Forces Framework for the Domestic SITE 39
Sector
Figure 7.1: Proposed Turnaround Tactics Model 50







1. INTRODUCTION

1.1 Project Background

Due to rapidly changing market and financial conditions, businesses today, all over the world, are facing new and increasingly tougher challenges. Having benefited from improvements in technology and industrialisation, businesses are now exposed to increased financial and market uncertainty.

“Business  failure  is  a  gradual  process – it rarely  occurs  overnight”  (Scherrer 2003 p.55).

“Every  business  firm  suffers  declines  in  its  fortune  from  time  to  time”  (Schendel  et al. 1976b p.3).

A severe liquidity crisis happened in the Taiwanese bond market in 2004. All Securities Investment Trust Enterprises (SITE), also called Unit Trust firms in the western world, experienced a massive monetary redemption and found themselves close to experiencing a cash dry-out. Thanks to intervention by the government bureau; the Financial Supervisory Commission (FSC), the crisis was averted as shareholders of
SITE firms were forced to accept the financial forfeit themselves or be bought-out by competitors. Three years later, some SITE firms have been transformed from near death to sustainable good health, while some have merged or are still struggling to survive in the market place.      
 
Of interest to this report are the management decisions and turnaround experiences that led to substantial decline, subsequent recovery or continuous growth. This report assesses the extent to which leading SITE firms recovered from massive financial damage. It also aims to survey attitudes and opinions on to what extent reputation and trust matters to investors, and to establish a future direction for a long-term turnaround
strategy.  

In doing this, the study builds on the work of Schendel et al. (1976b), Barker and Duhaime (1997), Harker (1998) and others who have devoted their knowledge to the study of turnaround process and strategy management.



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