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Podcast # 39: What makes a good manager Part 2

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Business Rhythm with Frank and Jamie – “In a previous podcast, we discussed about what makes a good management, where we cited operational management and resource allocation as two key elements of good management. In this short article, we zoom in on the key qualities of an individual that makes him or her a good manager. We borrow from the observations and experiences of Warren Buffett and Charlie Munger, two great investors of our time, in judging the quality of managers. Spotting a good manager of a company is important if you are an investor or owner of a company. A group of good managers comprise high quality management that is a critical element to the success of a company.”

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What makes a good manager – Part 2

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What Makes a Good Manager? By Frank of Business Rhythm

In a previous podcast, we discussed about what makes a good management, where we cited operational management and resource allocation as two key elements of good management. In this short article, we zoom in on the key qualities of an individual that makes him or her a good manager. We borrow from the observations and experiences of Warren Buffett and Charlie Munger, two great investors of our time, in judging the quality of managers. Spotting a good manager of a company is important if you are an investor or owner of a company. A group of good managers comprise high quality management that is a critical element to the success of a company.

The primary quality is the interest and habit of continuous learning. The world is complex. The more we know about ourselves and the environment, the more effective we are in shaping the world around us. The world also changes, and it is important to know how the world is changing in ways that affect our lives and organizations. Managers who constantly learn and adopt to new things have an edge over those who stops learning after leaving schools.

Second is resource allocation. We provided examples in podcast no. 34 about choosing the most profitable clients or products. But in addition to this, resource allocation is also about effective investment of retained earnings of a company by channeling the excess funds to the most profitable investments. In practical terms, resource allocation also means choosing the right people to hire, promote, or assign to specific tasks. Successful managers are very good at channeling all types of resources to where they count.

The third quality of a good manager is being a Level 5 leader. Introduced by leadership author Jim Collins, level 5 leadership means answering the question of whether the person prioritizes the company or the self? Level 5 leaders puts the health of the company and other people as the primary goal for leadership and management. Conversely, lower quality managers put the self above all else. Level 5 leaders are uncommon, but the outcome of the two opposing orientation can be staggering.

The last quality is track record. We should not discount the basic value of track record. Managers who have succeeded in managing complex organizations and projects with consistency are poised to do well in future projects. Without the outcome of management in practice, it will be difficult to gauge the effectiveness of a manager. A manager can try to impress other people about his knowledge of management, but unless he applied them successfully in an organization, no one would know for sure whether he can pull it off in the future.

These four key elements will be very useful to any investor or business owner in their goal to maximize the value of the company they own.

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Business Mango Originals: “AmorePacific: Toughing it out with THAAD”

We have a new series of content starting this November 2017.  Aside from Podcast, we will be writing about companies that we find interesting. For the first article, we are looking at AmorePacific, a top cosmetics and skin care company in Asia and determined to make its global footprint.

AmorePacific: Toughing it out with THAAD

Summary. AmorePacific’s strong financial and liquidity position, innovative product rollouts such as cushion foundations, sleeping packs, and snail slime, strong R&D capabilities, and its portfolio of “global champion brands” will enable it to carve out a strong market position in Asia and continue to expand internationally.  The Harvard Business Review and INSEAD recently ranked its CEO, Chairman Suh Kyung-bae, as 20th best performing CEO in the world.

This year’s diplomatic tensions with China may have hurt the company’s travel retail sales in South Korea, a key market segment, and overall operating profits, but will likely remain a moderate, albeit short-term risk, that can be addressed by redefining and making changes in its channel sales strategy. Early this year, China banned tourist groups from visiting South Korea, following Seoul’s decision to deploy Terminal High Altitude Defense (THAAD), an American missile system to guard against North Korea. (Chinese tourists who want to travel to Seoul have to book the flight and hotel themselves.)

AmorePacific currently stands as seventh-largest beauty manufacturer worldwide, according to Statista, with global revenue of 5.6 billion dollars as of 2016. This year, three of AmorePacific’s five “global champion brands”— Sulwhasoo, Innisfree, and Laneige—made it to the Global Top 50 Cosmetic Brands of Brand Finance’s rankings.  Sulwhasoo and Laneige are also among the Top 10 Beauty Brands in China based on Kantar TNS surveys in 2017.  AmorePacific has succeeded in increasing global awareness, admiration, and loyalty of its champion brands.

A critical factor behind AmorePacific’s success is its strong commitment to research and development (R&D) for the purpose of creating value for its customers, addressing their pain points, being attuned to their tastes, and offering a great experience. AmorePacific also knows how to create well-crafted and expressive products and packaging to communicate the brand’s benefits. Amorepacific operates six R&D facilities, Seongigwan and Mizium in South Korea; Shanghai R&I Center in China; Chartres R&D Center in France; Tokyo R&D Center in Japan and Singapore R&D Center in Singapore.

A five-year snapshot from of AmorePacific’s selected financials below shows that it has had very strong financial and operational performance prior to South Korea’s political tensions with China. Sales and operating cash flow grew at double digit rates and registered healthy levels of financial leverage between 2012 and 2016. This has given the company sufficient of financial resources to expand abroad

Notwithstanding all this – AmorePacific needs to expand its sales channel beyond South Korea and duty-free shops to diversify risks. AmorePacific is still very much focused on domestic market – with sales in South Korea accounting for 71% of revenues. Chinese tourists in South Korea represent a huge customer base for AmorePacific.  Domestic sales of AmorePacific from travel retail channels across all segments (luxury, premium, and mass categories) declined due to huge drop in number of Chinese tourists in South Korea in the second and third quarter of 2017. This has subsequently hurt the company’s operating profits, which dipped by 40% in the third-quarter of 2017. Statistics from the Korean Government report a 45% decline in number of Chinese tourists.

LG Household & Healthcare, AmorePacific’s closest rival, reported a 7.7% operating profit for its beauty segment, according to its third- quarter earnings report. It does not depend on travel retail sales as much as AmorePacific does, and has just begun its duty-free business in the business segment. In contrast, AmorePacific generates 24% of its revenues from duty-free shops.

Not all is lost as sales in AmorePacific’s global champion brands show resiliency in China and rapidly grow in the ASEAN region. AmorePacific registered revenue growth of 8% in the third quarter of 2017 in Asia (excluding South Korea), which is dominated by China based on its third-quarter report. While duty-free sales of Sulwhasoo— the company’s ultimate luxury brand—decline in Korea, the brand continues to strengthen its position in China and ASEAN.  Further, Laneige, Innisfree, and Etude House continue to expand in ASEAN region. AmorePacific has already overtaken Estee Lauder in Southeast Asia – although it still lags very much behind L’Oréal and Shiseido, according to Euromonitor. The company has also launched several initiatives to improve and expand online and digital shopping within China and ASEAN

If AmorePacific wants to become the global leader in Asian beauty cosmetics by 2020, it has to successfully establish strong market presence in the US and maintain brand leadership in China.  The US market for cosmetics and skin care still represents the biggest market (and perhaps the toughest) in the world, with an estimated market size of $85 billion based on retail sales, according to Euromonitor. AmorePacific aims to increase its market presence in the US. E-commerce sales of the luxury segment are robust in the US – however, the uptake of premium cosmetics is a bit slow. It is in the midst of restructuring its business and channel portfolio and has increased investment to diversify customer base. This has substantially slowed down sales of premium cosmetics segment in the first three quarters of this year.

The company recently appointed Jessica Hanson as President and General Manager of AmorePacific US to help expand market share in the US.  The current size of Korean beauty (K-beauty) products in the US is estimated to be about $344 million based on US imports of cosmetics from South Korea.  According to Kline Group, K-beauty is expected to expand by a further 16% from 2016 to 2021. AmorePacific comprises 35% of the market, presenting an opportunity to take more market share.

K-beauty products in Mainland China appear resilient to current political spate between China and South Korea. Data from Korea Customs reveal that China’s imports of make-up and skin care, including powder puffs and pads for cosmetic use, actually increased by 10% to $747 million from $678 million for the first nine months this year.   AmorePacific reports that it continued to expand stores and gain new customers in China for its luxury line from June to September.  Sales of its products to Asia, more than half of which come from China, grew to 406.4 billion won in third-quarter this year from 376.2 billion won in the same period last year.  The tension between the two countries may have slowed down Amorepacific’s sales in Mainland China – but it has not halted the high demand for its products. AmorePacific’s substantial investments behind its brands and focus on creating value for customers through innovation will continue to help it grow and strengthen market presence in China

 

 

 

 

 

 

 

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Podcast #38: The key to executing projects well

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From Business Rhythm with Frank & Jamie – “A great idea also needs passionate and committed leaders who will seriously pursue, sustain, and scale it up. Further, the leader should be able to motivate his or her team and help overcome obstacles and challenges along the way.”

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Podcast # 37: What makes a great CFO

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From Business Rhythm with Frank & Jamie – “A CFO is a member of the senior management team. Contrary to popular conception, his job is not confined to the traditional financial services functions such as accounting or treasury. His role is broad. He is expected to be strategic and to carry out a number of similar functions of a CEO. A CFO understands business operations and knows the drivers of company value. He can translate the financial impact of business decisions and guide the rest of the company towards profitability.”

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Podcast # 36: Organizing and Leading for Innovation

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From Business Rhythm with Frank & Jamie – “Innovation serves as a powerful means to drive business growth in today’s challenging economic environment and information driven marketplace. Companies must not only figure out what their current sources of competitive edge and examine their business strategies, but they must also find new ways to innovate and revamp their business models to sustain competitive advantage. In today’s podcast, we will discuss how business executives can organize and lead for innovation. “

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Podcast # 35: CEO in Battlefield from Business Rhythm with Frank & Jamie

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From Business Rhythm with Frank & Jamie – “The conventional image of a CEO is someone in a formal suit, sharp, eloquent, and decisive. He is either feared or respected. Everything looks calm and in control within the CEO’s immediate vicinity. Little do people realize that a CEO is often engaged in battles – such as business disruption and survival, leading people towards change or a new vision, dealing with internal conflicts, and struggle with government and regulation.”

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Podcast # 34: What is Good Management?

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From Business Rhythm with Frank & Jamie – “Let’s talk about operational management. A critical aspect of operational management is matching supply with market demand. If you have too much capacity, you have very expensive idle resources that will weigh in to the profits you generate from a few clients. It is often tempting to build so much capacity in a false hope that the company can generate demand very quickly. In reality, it is more difficult to grow a business in a short period of time than it is to add capacity. Needless to say, the traditional aspects of operational management such as ensuring quality of products and services and keeping the motivations and productivity of people are equally important in managing a business.”

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