on still utilises the conventional distribution channel. This causes the distribution channels to consist of more levels. As such this could increase the logistic cost in the system. This in turn causes higher prices for consumers and lower profitability for Kao Corporation. In addition, more levels in the distribution channel will cause logistic lag time to lengthen. Longer logistic lag time could cause lower responsiveness and other stock out cost at the point of sales. Non Keiretsu Company Currently, Kao Corporation is not a Keiretsu company like some of the successful Japanese firms. Keiretsu are very large and are able to enjoy huge economies of scale. Moreover Keiretsu have the ability to integrate forward and backward to reduce the power of buyer and supplier. Reliance on Imports Many of Kao Corporation’s subsidiaries outside of Japan depend on imports of raw material. This in turn makes these subsidiaries to be vulnerable to fluctuations in the Foreign Exchange Market. This is evident in the case of Kao Malaysia. When the Malaysian Ringgit depreciated drastically during the Asian Crisis, Kao Malaysia experienced significant increase in raw material cost. As such Kao Malaysia experience losses during the year 1998. Moreover imports are subjected to import tax and this could again cause cost to rise should the local government decides to increase taxes. Relatively high leverage Even though the debt ratio is showing a downward trend, it is still relatively high. At 31 March 1999, the debt ratio stands at 39.18%. This means that almost 40% of Kao’s assets are being financed by borrowings. As such this could cause the company to be bogged down by heavy interest and loan repayments. Potential Environmental Opportunities Emerging Markets Many developing countries such as Malaysia, Indonesia and Thailand are fast becoming tomorrow’s Big Emerging Markets (BEM). These markets have potential to grow and will contribute a ...
