Strategic Management Case Analysis of the Manila Electric Company in relation to the consecution of subject matters we have discussed

in class.

MERALCO
Submitted to: Mr. Dean Dela Paz

By: Camille Singson 113304-001106

Table of Contents I. II. III. IV. Recommendation Brief History Awards and Citations Mission and Vision a. Companys original version. b. My version. V. VI. External Factor Evaluation (EFE) Matrix Porters Five Forces Model

VII. Internal Factor Evaluation (IFE) Matrix VIII. Financial Ratios IX. Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix X. XI. Strategic Position and Action Evaluation (SPACE) Matrix References

I.

Recommendation
Meralco has already established itself as among the oldest and biggest companies to have survived in the Philippines. The company has more than a hundred years of experience to show it and they are sure to remain for even longer. My recommendation is solely based on my own personal opinion that I based on everything I have researched, learned and analysed about the company. I recommend that Meralco should start to regain market share in power generation. The company is very vulnerable to its suppliers. The company is very dependent on the Independent Power Producers that supply them electricity. Without these suppliers Meralco is sure to have closed down a long time ago. Before Meralco became a distribution company it also owned generating plants. These plants, under state policy, had to be given up to the government. As times and laws have changed I think that it is high time Meralco started to bring back their old business tandem, generating and distributing electricity. This will be very costly but even more so will benefit the company. Having their own generating plants would mean that they would not depend a lot on suppliers that at any time can raise their prices and Meralco would not have any choice but to pay. This backward integration strategy could possibly bring Meralco to even greater heights. Meralcos customers could also very much benefit from this. Imagine if Meralco did not have to pay so much for their supply of electricity?

This means lesser costs because everything would be under the same company. Having shared costs would mean lesser generating charges for its customers. Meralco doesnt have to acquire everything all at once. Although it is given that they have a lot money to work with it wouldnt be wise for them to spend all at once. They could just set a goal to buy or build at least 2 generating plants every 5 years and in time they would have enough to sustain their own power distribution. They could start little by little to become the best in the electricity industry. Given, however, that they are first and foremost known as the best in distributing energy it is their duty to be able to maintain that name and rank. They can spend on investing on power plants but they must also continue to invest in continuously enhancing their distribution system. A lot should be taken into consideration but I believe that with the proper investment team that can manage their investments it will work out well. They should also make their risk management programs better. Money is not the only deciding factor in taking big steps as starting to generate their own electricity. The employees of Meralco should be also very willing to accept big changes and share their own efforts to support the companys endeavour to be better. The company could start by buying shares from Independent Power Producers and little buy little buy their way up to become majority stock holders. This means that they dont have to shell out a huge amount of money at one time but instead theyll still be able to earn little by little from their investment as well. Another step that I think they could take would be to build their own generating

plants. It will be a very demanding feat but very rewarding in the end. Still, they dont need to give out a big amount of money right away for this. They could just spend whatever the company has to spend that is extra until it is fully functioning. By extra I mean the money that will be in excess of their money having payed everything that needs to be payed for first. Either way they will spend and it might become stressful as well but more than likely to be very rewarding for Meralco in the future.

II.

Brief History
MERALCO is an investor-owned utility serving roughly a quarter of the estimated 94 million population of the Republic of the Philippines. It is by far the largest distributor of electrical power in the country. It started as a provider of electric light and power and an electric street railway system to Manila and its suburbs 109 years ago in 1903. It was then named Manila Electric Railroad and Light Company. The facilities that Meralco built to provide these two services represented for many years the largest single investment of American capital in the whole of East Asia.

In 1904 the company acquired a firm that operated public transportation and ran Manilas horse-drawn and steam-operated tramways. For a little more than four decades, Meralco provided Manila with its first modern mass public transportation system with these electric streetcars. It was a fleet of 170 streetcars before they switched to buses. The tram line was 52 miles long. World War II destroyed the railway system beyond rehabilitation which then caused the company to shut it down and began to concentrate on power generation and distribution instead. Meralco also opened a retail store that sold electric home appliances but they decided to give it up. As time passed the company decided to sell their transportation business to Halili Transport before it became Filipino owned in 1961. Eugenio Lopez Sr. bought Meralco from its American owners and thus it became the first major American enterprise to be Filipinized. During the decade that followed, the new management built electric generating and distributing facilities in a pace that had never happened before to be able to cater efficiently to their franchised area; this was made possible by earning the confidence of international credit institutions, and other banks, insurance companies, and major American, German, and Japanese suppliers. During Martial Law, Meralco was taken away from Don Eugenio Lopez and was renamed Meralco Foundation Inc. and was controlled by government owned NAPOCOR. When Cory Aquino assumed the position as President of the Republic of the Philippines she returned Meralco to the Don and it competed with NAPOCOR.

Meralco was the first to issue mortgage trust indenture bonds successfully in the US financial market on Wall Street. In 1969, Meralco became the first billionpeso company in the Philippines. This was all the more remarkable because they did not get any government guarantees. In the 1970s the Philippine Government issued a state policy for the government to own all major generating facilities. Meralco sold its generating plants to the National Power Corporation, and electric distribution became its core business. In the first half of the 1980s, Meralcos franchise tripled in size, mainly because consumers preferred their rates and service.

Upon the request of the government Meralco organized, started and operated the countrys first elevated light rail transit which we now are more familiar with as the LRT in the 1980s. The system ran from Baclaran to Caloocan and was very much like that of the citys old streetcar system. At the end of the decade Meralco turned over the efficiently functioning system to the government. Since the same year state policy on private investments in electric generation also changed.

Meralco continued its status in being one of the oldest and biggest Philippine companys. It has gone through so many changes as to names and slogans but they made sure to retain the companys core values. This effort was greatly recognized by others and the company earned numerous awards. Major stock transactions in 2009 allowed Meralco to form synergistic partnerships with two other giant Philippine companies such as the PLDT and the San Miguel groups. These partnerships led not only to increased business opportunities and cost reductions, but also to new, expanded and more affordable service to the public.

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Based on what I have research the ownership of the Manila Electric Company is as follows: 43% belong to the San Miguel Corporation, 34.8% to Beacon Electric Asset Holding Inc., 6.7% to the First Philippine Holding Corporation after selling its 26.6% share to Manny Pangilinans MPIC and Piltel, 6.1% belongs to the PLDT Communications and Energy Ventures, Inc. which is also owned by Pangilinan, and the remaining 8.9% are public stocks.

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III.
2012

Awards and Citations

Awards/Citations Asia's Best CFO (Investor Relations) - Rafael Andrada Best Investor Relations Company (Philippines)

Anvil Award of Excellence for: The Meralco Twitter Experience - Using Social Media to Address and Engage Customers on a Personal Level Anvil Award of Merit for: Bio Intensive Gardening (environment/science and technology/sustainable development) Lighting Up Lives through the Isang Litrong Liwanag (social responsibility) Meralco's Water Lily for LIFE Project: Community Building for Wealth Creation (entrepreneurship/ job generation) One Meralco Foundation, Inc. Launch (special events) "Two Days of Ultimate Basketball, One Magical Experience: A Fan's Upclose and Personal Account of the Ultimate All-Star Weekend" Powering Up to Success: Shaping the New Meralco through Corporate Values and Employee Engagement

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2011 Awards/Citations Nominee for Best Investor Relations for Philippine Company in Singapore Market IR Magazine Best in Asia on Corporate Governance Best Investor Relation by Corporate Governance Asia

Philippine Quill Awards Award of Excellence ("Maliwanag ang Pasko" Christmas Campaign) Special Events Finalist (The Lighter Side of Meralco: Bringing Energy Efficiency Tips Closer to the Customer) Brand Communication Finalist (New Meralco Brand Architecture - Gearing towards the Future) Employee/Member Communication Award of Merit (Powering up to Success: Shaping the New Meralco Through Corporate Values and Employee Engagement) Media Relations Finalist (Empowering Partnerships: The Advantages gained by Meralco's Corporate Business Group through a Strategic Media Campaign) Social Media Award of Merit (The Meralco Twitter Typhoon Response Experience - Managing customer concerns during typhoon crisis situations)

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Media Relations Finalist (Pailaw Naman! How Meralco's Proactive Dissemination of Information on the Generation Charge is Helping influence Media Reportage)

Community Relations Award of Merit (Meralco Community Electrification Program/MCEP)

Special Events, Internal or External (One Meralco Foundation, Inc. Launch)

Community Relations Finalist (Bio Intensive Gardening) Employee/Member Communication (Makabayan Employee Volunteerism) Economic, Social and Environmental Development (Meralco's Water Lily for Life)

Community Relations (Meralco Sibol School Project: Providing Access to Education)

Press Releases Meralco romps off with 13 Quill awards (Philippine Daily Inquirer) Meralco's communication flair soaring higher (Manila Bulletin) Meralco grabs 13 Quill awards (Business Mirror) Business Communication Excellence (The Philippine Star)

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2010 Awards/Citations Nominee for Best Investor Relations IR Magazine South East Asia Conference and Awards 2010 2009 Press Releases Meralco clinches Three Quills Meralco hailed the best Corporate/Financial Institution in Southeast Asia Meralco cited as one of the Philippine's Best Performing Companies Recognized in Platts Top 250 Global Energy Company Rankings

Awards/Citations Oct. 22 - Awards of Excellence in the Philippine Quill Awards Sept. 4 - Gold Award in the Regional Quality Circles Project Competition Sept. 1 - Recognized as Top Employer by the Social Security System Aug. 14 - Best Corporate/Financial Institution of the Year 2008-2009 Jul. 23 - Recognition as one of the country's Best Companies

Safety Awards Oct. 29 - Perfect Safety Record Oct. 29 - Award of Honor Oct. 29 - Award of Distinction

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ISO Certifications 2008 Press Releases Meralco execs named top UP Eng'g alumni Meralco recognized for good Corporate Governance ISO 9001 Sub-transmission Services (Mar. 2, 2009 ' Nov. 2010) Distribution Services (Mar. 2, 2009 ' Nov. 14, 2010) ISO 14001 & OHSAS 18001 South Distribution Services (Mar. 2, 2009 ' Mar. 1, 2012)

Awards/Citations Mar. 3 - CEO EXCEL Award for 2008 Recognition for Best Investor Relations Award for Corporate Governance

Safety Awards Nov. 5-7 - Safety Recognition Awards Oct. 4 - Winner in the 18th National Industrial & Commercial First Aid & CPR Team Competition Apr. 15 - 5S Best Solid Waste Management Implementation - 5S Sector Category

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Apr. 15 - 2008 5S Best Solid Waste Management Implementation Business Center Category

Apr. 15 - 2008 5S Best File Management System Apr. 15 - 2008 5S Best File Management System Apr. 15 - 2008 Most 5S Compliant Canteen Business Center Category Apr. 15 - 2008 Most 5S Compliant Canteen Office Category Apr. 15 - 2008 Most Improved in 5S Implementation Sector Category Apr. 15 - 2008 Most Improved in 5S Implementation Business Center Category

Apr. 15 - Special Safety Awards Award of Merit Apr. 15 - Award of Honor Apr. 15 - Award of Distinction Apr. 15 - Perfect Safety Record

ISO Certifications ISO 9001 HRD - Training & Development Administration (Jan. 2008 - Jan. 2011, Recertification) Metering Services (Mar. 11, 2008 - 2011, Certified) ISO / IEC 17025:2005 Corporate Meter - Meter Testing (Aug. 13, 2008 - Aug. 13, 2013, Reaccreditation)

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2007 Press Releases Meralco bags 2 Philippine Quill Honors

Awards/Citations Nov. 23 - Plaque of Appreciation from Ateneo de Manila Nov. 23 - Plaque of Appreciation from Ateneo de Manila Mar. 16 - Gold Quill Award of Merit

Safety Awards Oct. 18 - Award of Honor - Sta. Rosa Sector, given by SOPI, DOLE & BWC Oct. 18 - Award of Merit - Central Branches, given by SOPI, DOLE & BWC Oct. 18 - Award of Distinction - South Branches, given by SOPI, DOLE & BWC Oct. 18 - Award of Commendation Sep. 3 - Gawad Kalikasan ng Pasig Aug. 25 - Safety Recognition Awards May 21-22 - Outstanding Road Safety Program for the Private Sector

ISO Certifications ISO 9001 System Control Center (Feb. 16, 2007 - Feb. 15, 2010, Certified)

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2006

Call Center (Feb. 23, 2007 - Feb. 19, 2010, Certified) Corporate Information Office (Jan. 26, 2007 ' Jan. 25, 2010, Certified)

Safety Awards Nov. 8-10 - National Industrial Convention Perfect Safety Record Nov. 8-10 - National Industrial Convention Award of Merit Jun. 6-7 - The MARS Level 2B audit Founders Award Feb. 7 - Perfect Safety Record Award - For achieving no lost time accident for the year 2006 ISO Certifications ISO / IEC 17025:2005 Corporate Meter - Meter Testing (Aug. 13, 2006 - Aug. 13, 2008, Reaccreditation) 2005 Press Releases National agency cites Meralco civic programs ECOP names Meralco the 2005 Grand Kapatid winner Asiamoney acclaims Meralco among the best managed in the region Testing - Calibration & Repair (Dec. 2006 - Dec. 2009, Re-accreditation) Testing - Mechanical (Nov. 20, 2006 - Nov. 19, 2009)

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Meralco sets example of Good Corporate Citizenship

Awards/Citations December - Gawad Kalinga, Bayani Nation Builder Award May 18 - Grand KAPATID Award

Safety Awards Oct. 27 - 38th National Industrial Convention Perfect Safety Record Oct. 27 - 38th National Industrial Convention Award of Honor - Valenzuela Sector, awarded by SOPI ISO Certifications Telecommunications (Feb. 23, 2005 - Feb. 17, 2008, Recertification) HRD - Training & Development Administration (Jan. 16, 2005 - Jan. 9, 2008, Recertification) Corporate Information Office (Jan. 26, 2007 - Jan. 25, 2010, Certified)

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IV.

Mission and Vision

a. The companys original Mission and Vision statement.

Mission is to provide our customers the best value in energy, products and services. Vision is to be a world-class company and the service provider of choice. Meralcos Corporate Values Our Corporate Values move us to respond more effectively to the requirements of our dynamic business environment, and propel us to create a bright future for our Company and its stakeholders. Our Corporate Values manifest in the following attributes:

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Objective is to protect and enhance the interests of its stakeholders by committing itself to the following principles: 1. The Customers are its reason for being, and therefore, they should always be treated with dignity. The Company must be fully responsive to their needs. The Company has the responsibility to:

Provide the customers with the highest quality products and services, consistent with their requirements and with international standards;

Treat the customers fairly, courteously and with integrity in all of its business transactions;

Act promptly on their immediate concerns and be receptive to their longterm needs and interests; and

Make every effort to ensure that the health, safety and general well-being of its customers are enhanced by its products and services.

2. The Employees are its most valued asset, and therefore, they should always be treated with dignity and with full consideration of their interest. The Company has the responsibility to:

Provide its employees with incentives and opportunities for professional growth and advancement;

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Provide its employees with just and competitive compensation, and benefits that improve their living conditions and incentives

Guarantee fairness, equal treatment and opportunity, and avoid discriminatory practices; and

Provide suitable and safe working conditions to protect employees from avoidable injury and illness in the workplace.

3. Its Investors are its principals, and therefore, the trust they have placed in the company must be honored. The Company has the responsibility to:

Apply professional and diligent management to ensure the financial viability of the company and maintain a fair and competitive return for its investors; and

Conserve and enhance its investors' assets, and fulfill and safeguard their interest.

4. The Suppliers and Creditors are its business partners and, therefore, the relationship with them must be based on mutual respect and benefit. The Company has the responsibility to:

Foster long-term stability, direct relation and continuous development with suppliers to attain quality, competitiveness, process efficiency and performance reliability;

Seek fairness, truthfulness, integrity and transparency in all of its business dealings with them; and

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Seek, encourage and prefer suppliers whose business practices respect human dignity and the environment.

5. The Competitors are its catalyst toward continuing service excellence and, therefore, the competition with them should be fair and honest, a basic requirement for national development in the distribution of products and services to the community. The Company has the responsibility to:

Promote behavior that demonstrates mutual respect among competitors; and

Maintain the highest level of business ethics and integrity.

6. The Community is its business environment and the society it serves. The Company has the responsibility to:

Uphold and maintain at all times the highest standards of business ethics; Fulfill with dedication and commitment its social responsibilities; Undertake activities that support and contribute to the economic and social development of the country;

Undertake activities that support and contribute to the economic and social development of the country;

Employ proactive measures and cooperate with the government and nongovernment institutions in activities to serve society towards a collective benefit.

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7. Employ proactive measures and cooperate with the government and nongovernment institutions in activities to serve society towards a collective benefit.

Help the government in its efforts and programs towards raising investor confidence, developing the capital market, and ensuring high sustained economic growth through good corporate governance.

Observe and comply at all times with the orders, rules and regulations of the government, its agencies and instrumentalities, in the pursuit of its utility objectives and other corporate endeavors;

Institutionalize sound environmental practices in collaboration with the concerned government agencies and encourage other

corporations/organizations to support all programs for an effective environmental management system. b. My own version of what the Mission and Vision should be. Mission 1. Customers We are where we are because of who we serve. MERALCOs customers are the energy that drives us to do our job efficiently and effectively. We will increasingly gain our customers loyalty through giving them a good value for their money.

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2. Products or Services As part of the MERALCO family, each and every one of us is accountable for our promise to supply uninterrupted and stable power to their homes and to all others that require it. We shall keep to this promise the best way we can. 3. Markets It is MERALCOs calling to provide a service incomparable to any other in Metro Manila, the entire provinces of Bulacan, Rizal and Cavite; parts of the provinces of Laguna, Quezon, Batangas and Pampanga. 4. Technology It is our duty to make sure that MERALCOs facilities are apt and continually enhanced. These facilities should always be capable of producing what is expected and more but never less. 5. Concern for Survival, Growth, and Profitability It is our responsibility to ensure that we are able to take care of each and every one of MERALCOs customers. As MERALCO provides its customers with light, they in return enlighten its future. In this respect, MERALCO will conduct its operations deliberately and will provide the profits and growth that will benefit our customers, employees, other investors and our society.

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6. Philosophy We willingly commit to MERALCOs corporate values of: Customer Service, Performance, Accountability/Empowerment, Integrity/Transparency,

Teamwork/Collegiality, Malasakit and Makabayan. 7. Self-concept We strive to maintain an electrification level in the franchise area of MERALCO at 99%. Maintain good relationships with our customers through exceptional customer service. 8. Concern for Public Image MERALCO is more than honoured to also take part in good corporate social responsibility by which we take part of through Sports and Youth Advocacies, Disaster Relief and Emergency Preparedness, Grassroots Partnership, and Rural and Missionary Electrification.

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9. Concern for Employees MERALCO ultimately has high regards for all of those that make this mission possible. These are the loyal employees that make up the MERALCO FAMILY. Vision To be the first to provide innovative solutions in the line of electric distribution that will benefit our customers, employees and the environment, and become the first and only choice of every Filipino family to provide electricity.

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V.

External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted Score

Opportunities: 1. Sole provider of electricity to franchised area of 9,337 sq. km. 2. Serves a little more than a quarter of the countrys population. 3. Increasing demand for electricity. 4. El Nino caused temperature to rise and resulted to higher electric consumption. 5. Customer loyalty. Threats: 1. Equipment failure 2. Improvement of on-line services 3. Narrow bargaining power with suppliers 4. Development of substitute products 5. Damages caused by adverse acts of nature TOTAL 0.10 0.05 0.15 0.04 0.03 1.00 3 2 2 1 3 0.30 0.10 0.30 0.04 0.09 3.03 0.19 0.11 0.13 0.12 0.08 4 3 3 4 3 0.76 0.33 0.39 0.48 0.24

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I gave the first opportunity I cited a weight of 0.19, highest of all, because I believe that it encompasses Meralcos purpose. I then gave it a rating of 4 because given that Meralco solely provides to such a huge area they have been doing a good job and us such their response to this opportunity is superior.

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Of all places in the Philippines the City of Manila is the most crowded. This is brought about by it being our countrys national capital. With a population of a little over 20,000,000, Manila is the fifth-most populous city in the world. The citys electricity is solely being provided by Meralco along with the places surrounding the metro. The Philippines has an estimated population of a little over 90,000,000 which means that more or less a quarter of the entire country is dependent on Meralco for electricity. I placed 0.11 as this opportunities weight in the matrix. I ranked it lower than compared to the first opportunity because I think that it is less important than the first but still more important than the others. I gave it a weight of 3 because I think that Meralco could do a better job in providing a better customer relations programs.

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My third opportunity is about the increasing demand for electricity. This is highly influenced by our weather. With the rising of temperature energy consumption also goes up. This is an advantageous opportunity for Meralco thats why I gave a weight of 0.13. I gave it a rating of 3 because I think Meralco has only responded to this opportunity averagely. The fourth opportunity I stated is in relation to the third. It is just that my fourth opportunity is very much supported by the charts of Meralco. It is because of the El Nino phenomena that Meralco was able to earn a record breaking amount of sales through energy consumption. I gave this opportunity a weight of 0.12 because of how this opportunity benefitted the company. It may not be a stable basis of yearly sales increase but even normal Philippine weather nowadays are getting to the people. I gave it a weight of four because Meralco took every ounce of advantage from the situation. It even might have been a surprise to Meralco but nevertheless they were able to provide their service effectively and efficiently.

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The last opportunity I cited is of Meralcos customers loyalty. I see this as an opportunity because given the quality of service they provide it is highly unlikely that if ever there would be new players in the market will Meralcos customers risk taking a chance to try them out. I gave this opportunity a weight of 0.08 and a rank of 3. I gave it a 0.08 because of the fact that its not like Meralcos customers have a choice in the first place but nevertheless it still is an important aspect. I ranked it at 3 because I think Meralco can develop more customer oriented programs that will maintain their customers loyalty. The first threat I cited is how sometimes Meralcos equipment become faulty. I see this as a threat because being focused mainly on power distribution any malfunctions may cause them a great deal. The weight I gave this threat is 0.10 and I gave it a rank of 3. I gave it a 0.10 because of how the company depends on its equipment to be able to deliver their service effectively. I gave it a rank of three because I think that the company has been doing a good job but they should still continue to improve their equipment.

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The second threat I cited in the improving of their on-line facilities. It has been a trend now for most people and businesses to settle bills through the internet. It saves customers from going out of their way to settle their bills where they would still have to fall in line. With on-line services paying bill can now be easily done at the most convenient time and even wherever you are. I gave this threat a weight of 0.05 and a rank of 2. I gave it a 0.05 because although it will prove to be a big help in terms of collection and customer satisfaction it is not that important as the others. I gave it a rank of 2 because there have been efforts already of improving this threat although I think that Meralco can be more aggressive about it. The third threat I cited is how Meralco has a narrow bargaining power with its suppliers. I see this as a threat because having to depend entirely on Independent Power Producers is very risky. Being privately owned Meralco has no control over them and there would also be circumstances that these suppliers may not be able to provide the electricity Meralco requires. A lot of things can happen like a probable mishap in a certain plant that would then mean no electricity for Meralco to distribute. Also, at any point in time these suppliers may also deny Meralco of their electric supply and this will greatly affect the company. I gave this threat a weight of 0.15 and a rank of 2. I gave it a 0.15 because it is a very important threat that may affect Meralco gravely if worse comes to worst. I ranked it 2 because Meralco could take more precautions with this threat. They could and they should have contacts with their major suppliers so that they can be secured.

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The fourth threat I cited is of the development of substitute products. As we are in a third-world country the effects of the worlds economy is greatly felt here. As the cost of living continues to soar some people have started to look for less costly alternatives. A perfect example would be the recycling of used plastic soda bottles and making them a make-shift light bulb to light peoples homes. It may be a small threat to Meralco but eventually it will cost them because regardless if people are using electricity or not Meralco cannot shut down their services. I gave this threat a weight of 0.04 and a rank of 1. I only gave 0.04 because it is not big of a threat yet for Meralco. I ranked it as one because although it is not that big of a deal yet it in time I believe it will be something that the company would most likely be facing. The last threat I cited is the damage caused by the adverse acts of nature. I see this as a threat for Meralco because of how the companys facilities are exposed to nature. All of their cables are in the open as well as their main plants which are also not covered. Nature is very unpredictable given Meralcos product it is best that they take every precaution in dealing with this threat. I gave this threat a weight of 0.03 and a rank of 3. I only gave it a 0.03 because it is a threat that is not in anyones hands. I ranked it three because Meralco has done a great job in reacting to this threat. A perfect example would be when most of Manila was flooded by Ondoy. Meralco was able to react to the situation by switching off their power in certain locations so as to not cause any more damage.

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VI.

Porters Five Forces

1. Rivalry Among Competing Firms Meralco is by law the sole distributor of electricity in its franchised area. Moreover, 54% of the total electricity usage in the entire country is being consumed within the Meralco service area. Electricity is indispensable and as such consumers that are within the franchised area of Meralco are left with no choice. This is a very big advantage for Meralco that is even made even greater by the fact that the demand for electricity is still on the rise as proven by Meralcos rate of increase in customers as well as increase in energy consumption. Having no competitor Meralco need not be burdened with having to constantly develop strategies that aid in gaining competitive advantage. This in turn gives Meralco more time and a much more flexible budget to enhance its facilities. 2. Potential Entry of New Competitors With Meralco having legal hold of its franchised area it would be near impossible for new competitors to share in its market. Although, I also think that given certain circumstances there might come a time when this might change. A law might be passed that would promote and require competition among businesses in a certain industry. This is most likely to happen when the costs of living have probably gone too high. Given such an opportunity there are probably a lot of hopefuls out there that have thought and hungered to have a piece of the market that Meralco solely caters to. When this happens I think that those that dare compete with Meralco will eventually fail. Its hard to beat a company that has been providing this

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service for a little over a hundred years already. And with their continuous investment in improving their facilities by the time that such an opportunity could arise Meralco is most probably going to be a lot farther from where they are now. Even if new firms would offer a lower price than that of Meralco it will still be very hard for them to gain advantage. They may be able to gain customers because of their low price but it would be impossible for them to compete with Meralcos facilities that have been, are still and will still be enhanced through time. 3. Potential Development of Substitute Products Electromagnetic induction is the most common process used by Power Plants to generate electricity. It may be done through burning of fossil fuels as well as from power that can be taken from the natural forces of water or wind. This process makes use of generators that are driven by heat engines fuelled by chemical combustion or through turbines driven by the force of falling water or the wind. After electricity has been produced it is then transmitted to distribution companies like Meralco which is the one that retails it to consumers. Ours is a finite earth. This means that there is an end to everything that is here. The depletion of our natural resources is a well-known fact all around the globe. Through the years that we have been inhabiting this world and discovered how to generate electricity we have unrelentingly and carelessly abused our role as stewards of this planet. We have taken advantage of resources to the point that maybe sooner than later will take its toll on our existence. Not only have we been

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depleting these natural resources but with how we make use of it we have also affected our atmosphere.

Coal-Fired Power Plant

Hydroelectric Power Plant

Wind-Powered Turbines

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Because of the posing environmental threats that we face with the continuous depletion of our natural resources other alternatives have been developed. An example of which would be solar panels. Solar panels are designed to capture energy from the heat of the sun and transform it to electricity that is ready to use. These panels, although seen rarely, are already available here in the Philippines. They are a little expensive and have limited capacity as to power output compared to the stability and capacity of electricity from power plants. Given the rate, however, at which costs of living have gone so high, only time will tell when which proves to be the best option that one should spend on.

Solar Panel

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4. Bargaining Power of Suppliers Meralco is mainly an electric distribution company that purchase electricity from IPPs or Independent Power Producers that operate generating plants. It is safe then to say that Meralco is at the mercy of its suppliers. If by any cruel chance that the suppliers refuse to sell their electricity to Meralco it would automatically put the company out of business. Since Meralcos distribution business has been consistently earning higher and higher profit I think it is high time that they start investing on a new but related product. Acquiring a substantial amount of electric generating plants is highly plausible. It does not have to be a huge number that can support all of Meralcos franchised area but enough to ensure that if ever a minor glitch might happen it will not affect their customers. It is also possible for Meralco to form strategic partnerships with its suppliers so as to ensure that the flow of supply is stable.

Meralco Facility

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5. Bargaining Power of Consumers Again, since Meralco is the sole provider of electricity to a wide franchised area this force does not greatly affect the company. Meralco being deregulated from government control also aids to not being affected by this force. Although, given that the companys customers are the ones that provide their business it would be wise for Meralco to exhibit the sense of value towards them.

Happy Customer

Sample of Meralco Bill

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VII. Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating Weighted Score

Strengths: 1. Frequent employee development programs. 0.08 3 0.24

2. Revenue increased by 25%. 3. Outstanding company operational performance.

0.15 0.10

4 3

0.60 0.30

4. Continued investment in distribution system.

0.12

0.48

5. Long-term bilateral power purchase contracts.

0.13

0.52

Weaknesses: 1. Customer service facilities. 2. Re-entry into power generation. 3. Risk management program. 4. Initiative to reduce generation charge on customers bills. 0.10 0.09 0.07 0.06 1 2 3 1 0.10 0.18 0.21 0.06

5. System reliability. TOTAL

0.10 1.0

0.30 2.99

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The first strength I cited is about how Meralco puts its employees through continuous developmental programs. These are programs that help the companys employees to enhance their skills needed for them to perform their job efficiently. I see this as a strength because nothing is permanent in this world except for change. As changes occur it is wise for Meralco to invest in aiding its employees to cope up with everything around them. I gave this strength a weight 0.08 and a rank of 3. I weighted it at 0.08 because I think that it is near as important to the other strengths I listed down. I ranked it at 3 because Merlaco has been and still continues its efforts to sustain this strength.

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The second strength I cited is on the 25% increase in Meralcos revenue. I see this as a strength because not only are they proving to be very efficient in what they are doing but they are also showing that they have enough to finance improving their efficiency even more. I gave this strength a weight of 0.15 and a rank of 4. I gave it a high weighted score because I think that the revenue they earned is a guarantee that they are able to become more and more better in the service they provide. I gave it a rank of 4 because it shows in their annual report that they have used their earnings wisely through major investments in improving their facilities. The third strength I cited is of Meralcos operational performance. Aside from favourable circumstances as when El Nino hit our country which caused customers of Meralco to increase their power consumption, none of their successes in the past year would have been possible without the participation of the people behind the business. I gave this strength a weight of 0.10 and a rank of 3. I gave it a weight of 0.10 because this is a very critical aspect in any business. I gave it a rank of 3 because of issues within the company about power struggle. They are currently going through an adjustment period that is the result of Mr. Manny Pangilinans buying of the majority of the companys stocks. He has now gained controlling power over Meralco. The fourth strength I cited is about how Meralcos continuous efforts in improving their distribution system. I see this as a strength because it means that they will continue to provide quality service regardless of how times change. I gave this strength a weight of 0.12 and a rank of 4. I gave it a rank of 0.12 because although it is very important it is not as important as the companys high revenues

47

that fund this strength. I gave it a rank of 4 because of the companys strong efforts towards this aspect of their business. The fifth and final strength I cited is of Meralcos efforts in closing bilateral power purchase contracts. I think that this is a strength because of the nature of the companys business. Given that they are only concentrated is distributing electricity they rely very much on their suppliers. Having legal contracts with these suppliers lessen the risk of Meralco having to face risks such as price hikes within the contract period as well as it provides the company a reliable source of power for a certain period of time. I gave this strength a weight of 0.13, the highest of all, and a rank of 4. I gave it the highest weight because of why I see this aspect as a strength. I gave it a ranking of 4 because Meralco has superb efforts to keep this strength. The first weakness I cited is about Meralcos customer service facilities. I think that this is a weakness because of personal experience. Since being held responsible by parents to take of the bills at home I have noticed that the company only has a few establishments that their customers may go to. This means that customers at some vicinities would have to go to those places that do have Meralco establishments. I gave this weakness a weight of 0.10 and a rank of 1. I gave it a weight of 0.10 because I believe that Meralco should make themselves available and easy to reach by their customers. I also think that this is essential in maintaining customer satisfaction. I gave it a rank of 1 because the company has been improving on this but they should put more effort in it.

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The second weakness I cited is how Meralco has begun its efforts in reentering power generation. Meralco did not start as a distribution company only. They were also in to power generation. In the 1970s a state policy was issued that required all generating plants be owned by the government. This event led Meralco in concentrating solely on power distribution. Since the downfall of NAPOCOR, Meralco has now taken efforts in rebuilding their generating business. I see this as a weakness because they could have taken steps in gaining this a long time ago. I gave this weakness a weight of 0.09 and a rank of 2. I gave it a weight of 0.09 because this could have helped them in major ways had they taken it into consideration. I gave it a rank of 2 because efforts are already being done by the company towards this weakness.

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The third weakness I cited is how the company has now given importance to their risk management programs. I see this as a weakness because this should have been a major aspect in running their business. They have too many risks at hand that are due to the nature of their business. I gave this weakness a weight of 0.07 and a rank of 3. I gave it a weight of 0.07 because I think that this is essential to the operation of the company. I gave it a rank of 3 because of the efforts that they have made towards this weakness. They have started to develop programs that will help them in lessening the risk involved in their operation. This is also discussed in their annual report and they have already seen improvements towards it.

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The fourth weakness that I cited is how Meralco has been taking efforts to reduce the generating charges on their customers bills. They have observed how much their customrs bills were high because of their generating charges. This is primarily due to the price at which Meralco buys their supply of energy from their suppliers. I see this as a weakness because in their more than 100 years of service it is very impossible that they only saw this now. I gave this weakness a weight of 0.06 and a rank of 1. I gave it a weight of 0.06 because although it is of importance to maintaining customer satisfaction it is also where most of the companys revenues come from. I gave it a rank of 1 because they have only showed efforts of intending to take action regarding this weakness. There have been talks and planning on how to do it but no action has been done yet. The fifth and last weakness I cited is of Meralcos system reliability. Nothing is and will never be perfect, a statement which is true for everything as well as everyone. At some point something or someone is bound to fail from delivering what is expected from it or him/her. Meralcos facilities are very reliable as a result of how they are putting major investments for its betterment. Regardless of this however, they cannot be assured that it will work as expected all of the time. I gave this weakness a weight of 0.10 and a rank of 3. I gave it a weight of 0.10 because I think that is a very important issue for the company. I gave it a rank of 3 because Meralco has been taking efforts in improving their systems regularly and as often as needed.

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VIII. Financial Ratios (based on 2011 Year End Financial Statement)

A. Liquidity Ratios

Current Ratio = 0.78

_84,043,000,000_ 108,331,000,000

Quick Ratio = 0.65

_70,250,278,643.53_ 108,331,000,000

B. Leverage Ratios

Debt-to-Total-Assets Ratio = 0.12

_24,400,000,000_ 210,388,000,000

Debt-to-Equity Ratio = 0.36

_24,400,000,000_ 68,501,000,000

Long-Term Debt-to-Equity Ratio = 0.30

_20,650,000,000_ 68,501,000,000

Times-Interest-Earned Ratio = 6.05

18,699,000,000 3,093,000,000

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C. Activity Ratios

Inventory Turnover = 1.25

_256,808,000,000_ 205,674,000,000

Fixed Assets Turnover = 2.43

_256,808,000,000_ 105,510,000,000

Total Assets Turnover = 1.22

_256,808,000,000_ 210,388,000,000

Accounts Receivable Turnover = 0.12

_3,499,000,000_ 29,108,000,000

Average Collection Period

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D. Profitability Ratios

Gross Profit Margin = 0.07

18,699,000,000 256,808,000,000

Operating Profit Margin = 0.10

24,602,000,000 256,808,000,000

Net Profit Margin = 0.05

13,227,000,000 256,808,000,000

Return on Total Assets (ROA) = 0.06

13,227,000,000 210,388,000,000

Return on Stockholders Equity (ROE) = 0.19

13,227,000,000 68,501,000,0000

Earnings Per Share (EPS) = 11.74

13,227,000,000 1,127,119,432

Price-Earnings Ratio = 0.35

4.10 11.73

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E. Growth Ratios

Sales

1.1%

Net Income

37%

Earnings Per Share

37%

Dividends Per Share

12%

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IX.

Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

Strengths Frequent employee development programs. Revenue increased by 25%. Outstanding company operational performance Continued investment in distribution system. Long-term bilateral power purchase contracts. SO Strategies Expand franchised area to cover the whole of Laguna. Frequently develop promotions that will entice customers. Add more programs to enhance the skills of employees. Weaknesses Customer service facilities. Re-entry into power generation. Risk management program. Initiative to reduce generation charge to customers bills. System reliability.

1. 2. 3. 4. 5.

1. 2. 3. 4.

5.

Opportunities 1. Sole provider of electricity to franchised area of 9,337 sq. km. 2. Serves a little more than a quarter of the countrys population. 3. Increasing demand for electricity. 4. El Nino caused temperature to rise and resulted to higher electric consumption. 5. Customer loyalty. Threats 1. Equipment failure. 2. Improvement of on-line services. 3. Narrow bargaining power with suppliers. 4. Development of substitute products. 5. Damages caused by adverse acts of nature.

1.

2.

3.

WO Strategies 1. Opening of multiple business centers around the franchised area. 2. Gain ownership of 2 generating plants that will help lessen customers generating charges on their bill. 3. Stronger efforts in making Meralco a customer-centric company. WT Strategies Improve on-line services for customers. Venture out and invest on new products related to the core line of the business. Continue investment on distribution service. Develop further risk management programs.

ST Strategies 1. Continued enhancement of facilities. 2. Establish long-term contracts with suppliers.

1. 2.

3. 4.

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X.

Strategic Position and Action Evaluation (SPACE) Matrix

External Strategic Position

Internal Strategic Position

Financial Strength (FS) Cash Flow Earnings Per Share Price Earnings Ratio Year End Revenue Working Capital 5 4 3 6 5

Environmental Stability (ES) Technological Changes Demand Variability Barriers to Entry into Market Competitive Pressure Risk Involved in business -1 -5 -1 -1 -1

23

-9

Competitive Advantage (CA) Market Share Product Quality Customer Loyalty Technological KnowHow Control Over Distributors -13 -4 -1 -3 -3 -2

Industry Strength (IS) Growth potential Profit Potential Financial Stability Resource Utilization Productivity and Capacity 5 6 5 3 4

23

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Conclusion: Environmental Stability (ES) Average is -9 / 5 = -1.8 Competitive Advantage (CA) Average is -13 / 5 = -2.6 Industry Strength (IS) Average is 23 / 5 = 4.6 Financial Strength (FS) Average is 23 / 5 = 4.6

Directional Vector Coordinates: x-axis: -2.6 + (4.6) = 2 y-axis: -1.8 + (4.6) = 2.8

2.5

1.5

0.5

Meralco should continue their efforts of pursuing Competitive Strategies.

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XI.

References
a. Title of Article: Meralco Name of Site: Wikipedia Date Accessed: March 17, 2012 Online URL: http://en.wikipedia.org/wiki/Meralco b. Title of Article: Electricity Generation Name of Site: Wikipedia Date Accessed: March 17, 2012 Online URL: http://en.wikipedia.org/wiki/Electricity_generation c. Title of Article: Meralco Main Site Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 17, 2012 Online URL: http://www.meralco.com.ph/index.html d. Title of Article: The Company Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 17, 2012 Online URL: http://www.meralco.com.ph/company-index.html e. Title of Article: Corporate Profile Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March, Ang Liwanag ng Buhay Online URL: http://www.meralco.com.ph/company/page-aboutcorporateinfo-corpprofile.html

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f. Title of Article: Corporate Mission, Vision, Values and Principles Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 17, 2012 Online URL: http://www.meralco.com.ph/company/page-aboutcorporateinfo-misvis.html g. Author of Article: Roberto M. Paterno Title of Article: At the Threshold of Fresh Synergies: Meralco in 2010 Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 17, 2012 Online URL: http://www.meralco.com.ph/company/page-aboutcorporateinfo-history.html h. Title of Article: Awards and Citations Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 17, 2012 Online URL: http://www.meralco.com.ph/company/page-aboutcorporateinfo-awards.html i. Title of Article: Quarterly Report Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 18, 2012 Online URL: http://www.meralco.com.ph/company/page-aboutinvestor-quarterlyreport.html

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j.

Title of Article: INVESTORS BRIEFING & TELECONFERENCE Yearend 2011 FINANCIAL & OPERATING RESULTS Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 18, 2012 Online URL: http://www.meralco.com.ph/pdf/aboutmeralco/YE_2011_Meralco_R eports.pdf

k. Title of Article: Re-Energized Meralco 2010 Annual Report Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 18, 2012 Online URL: http://www.meralco.com.ph/resources/pdf/Meralco%2010%20Annu al%20Report.pdf l. Title of Article: The Corporate Social Responsibility Arm of Meralco Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 18, 2012 Online URL: http://www.meralco.com.ph/company/page-csrsports.html, http://www.meralco.com.ph/company/page-csrdisaster.html, http://www.meralco.com.ph/company/page-csrgrassroot.html, http://www.meralco.com.ph/company/page-csrrural.html

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m. Title of Article: The Consumer Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 19, 2012 Online URL: http://www.meralco.com.ph/consumer-index.html n. Title of Article: Meralco Bill Components Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 19, 2012 Online URL: http://www.meralco.com.ph/customer/page-cusCarebillcomponents.html o. Title of Article: Electric Tips Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 19, 2012 Online URL: http://www.meralco.com.ph/customer/page-cusCaretipsElectrical.html p. Title of Article: Causes of Electrical Accidents Name of Site: Meralco, Ang Liwanag ng Buhay Date accessed: March 20, 2012 Online URL: http://www.meralco.com.ph/customer/page-cusCaretipsCEA.html

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q. Title of Article: Meralco Appliance Calculator Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 20, 2012 Online URL: http://www.meralco.com.ph/customer/page-cusCaretoolsCalculator.html r. Title of Article: Meter Deposit Refund Name of Site: Meralco, Ang Liwanag ng Buhay Date Accessed: March 20, 2012 Online URL: http://www.meralco.com.ph/customer/pagecusProduct-MDR.html s. Name of Site: Flickr Date Accessed: March 20, 2012 Online URL: http://www.flickr.com/photos/15693951@N00/878260084/sizes/z/in/ photostream/