FinancesMrs. Sumalabe who has an accounting background assumed the management of Inzpect’s finances. She is no stranger to the electronics business as she has previously worked as an electronics technician in Intel. Inzpect operates as a partnership between the Laya’s and the Sumalabe’s. Both parties have a 50-50 ownership stake, the actual capital funds for the first month or two were initially borrowed from the Sumalabe’s, from relatives, friends, and loan from Mr. Laya’s pension plan, which were all returned within a year of operation. The succeeding funds then came from collections from customers. As a small start-up, the owners postponed profit sharing for a while as most cash flows were earmarked for paying employee salaries. The company earnings were plowed back to purchase equipment and fund priority projects. Annexes A and B provide the company’s financial statements from 2005 to 2011. Some financial problems that they encounter are mostly on late collection of accounts receivable. Sometimes, their suppliers are already collecting but their clients are not yet paying. Their client terms are by phases. For instance, 20% shall be collected upon project approval, 40% upon installation and the remaining is after the end of the project. Meanwhile, their credit terms from their suppliers are for 30 or 45 days. Their finance department manages this through a monitoring system for accounts receivables and payables. In December 2008, the owners decided to increase the company’s capital from P1M to P56M. The application is still pending for approval by the Securities and Exchange Commission. The deposit for future stock subscription account refers to additional contribution made by the shareholders for building construction and leasehold improvement to be subsequently converted to equity shares. The OEM/ODM Market The original equipment and design manufacturers belong to the highest level of the value chain. In this subsector of the electronics industry where customization is at its very nature, innovation and design engineering is highly critical. In an article published by the Center for International Trade and Expositions and Missions, Mr. Laya was quoted that Inzpect’s biggest adversary is the international companies. Considering their advanced facilities and very sufficient funds, these foreign companies are sure to get the confidence of any major client. Although admittedly, those companies possess high-technology facilities, Inzpect is very optimistic in selling and promoting their products. Compared to their foreign competitors, Inzpect gives the same quality of products and services at a fraction of a cost.2 Some known OEMs and ODMs located in the Philippines are PSi Technologies, Inc., Ionics EMS Inc., Fastech Synergy Philippines, Inc., Philippine Makoto Corp., and Precision 2 Center for International Trade and Expositions and Missions. www. citem.com.ph. 2007 January 26. 8 located in Carmelray Industrial Park of the Philippines II. ISO14001. TS 16949. It provides turnkey sub-con manufacturing assembly. it also renders assembly and test services for standard non-power semiconductor packages used for industrial. general and customized packaging operations to drop shipment services to end users. magnetic eraser and lens. NEC ADSL Modems & DSLAM modules. test and tune. 5. Inc. Its facility in Taguig has the following certifications: ISO 9001. Cebu has P35 million capital and employs 320 employees. ISO9001 and ISO14001). automotive systems and industrial products. Mil-PRF-38535. It is located in Light Industry and Science Park I. electronic office equipment. Pentax Digital Camera Modules. located in Taguig City. It provides comprehensive package design. Inc and was renamed as Fastech in 1989. automotive. It assembles microscopes and its accessories. They assembled the PCB’s for the latest Timex digital watch models. It adjusts to the customers requirements in terms of delivery schedule changes and production changes. It manufactures aluminum die cast body and other mechanical parts of prismatic binoculars. product development and drop shipment services for OEM semiconductor and radio frequency/microwave manufacturers in Europe. Inc. consumer electronics. Cebu was established in 2000 as an independent surface-mount technology (SMT) contract manufacturing facility. Inc. packaging and testing for power discrete components. assembly and test services for power semiconductors used in various electronic devices used in telecommunications and networking systems.. consumer and automotive products. located in Mactan Economic Zone I. 4. Most of them are large enterprises located in export-processing zones and has acquired quality standards certifications.. TL9000 for telecommunications. Its production facilities in the Philippines are certified in ISO9001 with design. is a power semiconductor assembly and test services (SATS) company serving niche markets in the global power semiconductor market. Ltd. In April 2010. 3. Laguna. Philippine Makoto Corp. It possesses the Integrated Management System certification on quality. heart rate monitors. micro-packages and IC semiconductor components which support PTH and SMT technologies. industrial engineering and manufacturing system and integrated supply chain management. computers and computer peripherals. telecommunications. It caters to the needs of semiconductor and microwave manufacturing services for applications in the field of computers. PSi Technologies Inc. and was established in 1993. Ionics EMS Inc. Fastech implements the provisions of ISO/TS 16949:2009 and ISO 9001:2008 Quality Management Systems. started in 1983 as Circuit Packaging. PCB assembly. 2. Laguna..Microcircuits. Fastech Synergy Philippines. US and Asia. In addition to its power semiconductor assembly and test services. and TS16949 for automotive manufacturing. military and computer peripheral applications. Lapu-Lapu City. is an electronics and microwave manufacturing specialist. located in Mactan Export Processing Zone. 1. offers EMS and ODM services with product design and design support. new product introduction. optical rings and frames. It offers total solutions on assembly. telecommunications. The customer segments of the company are the PC and computer peripherals. environmental and health and safety (OHSAS 18001. Lapu-City. the company started the 9 . industrial and medical equipment industries. Etc. consumer electronics.. QS 9000. Precision Microcircuits. It is fully-owned by Japaneseowned Makoto Light Metal Co. ISO 14001 and ANSI ESD S2020. In its area of expertise. to be able to move forward several issues need to be considered: new industry penetration. and territorial expansion. For example. However. Inzpect is unique in the country. Strategic Prospects Many semiconductor multi-national companies transferred to China. This paved the way for its entry to the food and pharmaceutical industries. not many companies have the capability to design. tightness of the seal. The threat of the slowdown turned as an opportunity for Inzpect to explore other means of using the electronic inspection system for other industries. There is no company in the Philippines that is exactly the same to what they do. succession plans. presence of the best before date. in general. Expanding its network outside of Luzon is also an open possibility. and such other specifications required by the client. etc. In terms of operational improvements. Their vision systems are customized to inspect any product defects on the milk packaging such as volume of milk content. are ripe for penetration. they find Taguig City of utmost convenient due to proximity to their residence as well as their employees’ residences. they cannot practically buy machines intended for mass production because their business model involves customized machines which are mostly one-of-a-kind. especially its brewery company. consists of foreign manufacturers that integrate inspection facilities into imported machinery. corporate finance. The owners once considered locating in an export-processing zone to enjoy tax incentives. quality management systems. Inzpect is able to provide design and cost-effective systems for local manufacturers.laser engraving. Target companies like Wyeth. manufacture and integrate the same into any local process. marking & cutting division which caters to a wide array of customers and manufacturers from fashion jewelry. however. Since their vision systems are programmable to meet the quality requirements of the client. One of the reasons why they survived through these years is the fact that their company is unique. The competition. 10 . gift items. Vietnam and Cambodia due to cheap labor costs resulting to the slowdown in the semiconductor industry which is one of the major clientele of Inzpect. Nestle and San Miguel Corporation. should the firm consider setting off satellite sales office in Cebu or Davao. Their recent product line is an automated inspection system that scans milk formula and checks whether it conforms to standard product specifications. home decor. it has proven to be flexible and adaptable to such other industries that require automated quality control systems. while Cognex solutions are available from Singapore. What business opportunities can the company explore? c..e. What interventions should the government do in order to assist the growth of enterprises like Inzpect? 11 . What are the company’s areas of strengths and weaknesses over other electronics manufacturing companies? b. How is the company situated within the electronics industry? a. What key occurrences do you think were critical to the making of an entrepreneur amongst them? b. technical. What milestones were important to the enterprise? 2. What key risk areas is the company vulnerable to? b. marketing. How did the entrepreneurs in the spouses Laya and Sumalabe emerge? a.Study Guide Questions: 1. Is territorial expansion advisable? 5. What key strategic considerations should the owners focus on? a. How do the owners match the functions that each of them assumed? c. What particular industry should the company penetrate and how do you think should they do it? d. How does the company fare in terms of the different functional aspects (i. What key points do other electronic manufacturing companies possess that Inzpect can take a look on in order to improve its operations or strategic position? 4. human resource and finance)? 3. 747 2.073.496 Income Tax Payable Total Current Liabilities Shareholders' Equity Capital Share (1.790 4.562 38.414.369 69.296 15.362.431 34.396 21.462.382.132 4.589.445.706.440.790 4.174.913.807 7.150.283 5.267.653 5.747 2.496 1.217 3.165.639.339.393 50.361 401.775 1.997 7.883.088.160 31.467.353 20.150.061.088.575 4.792 1.000 100.362.914 13.283 5.601.000 Additional Paid-in Capital 2.628.837 Parts Inventory Prepayment Tax Asset Total Current Assets Property and Equipment.440.105 238.403 61.000 100.616.995 24.196 1.249 44.996 24.Annex A Inzpect Technologies.088.907.072.072 13.744.051 699.200 100.625 70.127 5.630 389.000.088.000 100.537 6.354 - 11.483 7.925.401.805 Receivables 6.462.280.551 15.070.035 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts Payable and Accrued Expenses 2.523 26.873.353 2009 2010 Inzpect Technologies.802 2.070.380 3.928.003 - (3.496 99.905.814 33.779.734 1.121.883.000 100.385.790 12.000 100.588.270. STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY For Years Ended December 31 (In Philippine Pesos) 2005 2006 2007 2008 2011 Contributed Capital Beginning Additional Subscription (reclass) End Additional Paid-in Capital 100.679 18.335.658 100.178 6.205 11.747 2.000 100.003 12 .879 5.000 100.519.210 9.000 100.224.727.790 4.291 10.455 3.239.754 9.159 20.898 15.233. Bal.102.300 1.605.884.238 Advances from Officer Deposit for future stock subscription 681.581.000 100.241 22.233.160 31.747 2.353.401.000 13.570 1.907.714.180.747 547.444.931 361.629.322 19.747 2.319.493 1.031 13.712 8.810.526 18.463 2.000 sh @ P100 par value) 11.088.519.747 2.092 1. Inc.218.945 100.712.202.088.423 74.088.807 7.864.200 100.088.800.823.088.913.094 2.000 13.652 1.979.747 2.036 493.706.747 2.854 5.747 2.455.484.440.152 13.739.000 13.895 1.591.064 22. Inc.000) 1. STATEMENT OF FINANCIAL POSITION As of December 31 (In Philippine Pesos) ASSETS 2005 2006 2007 2008 2009 2010 2011 Current Assets Cash 6.000 2.704 15.883.103.000 Cumulative Earnings Beginning Restatement of Beg.088.000 100.038.224.889.462.088.038.380 3.088.747 2.778.838 11.232 3.905.739.695 15.556.480.038.200 13.800.325.088.814 33.293.811.001 11.618 824.147 60.605 1. Net TOTAL ASSETS 657.209.053.188 3.747 2.380 3.556.807 493.036 453.241 22.081 1.200 (13.401.851.000 100.523 15.300 375.200) 100.150.948 Total Shareholders' Equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4.547.790 1.000 11. 48.135 14.306.747 Retained Earnings 1.924 Retirement Fund Payable 832.410 98.523 26.000 100.880 3.003 8.016.283 5.747 2.292 1.147 60.575 4.657 3.966 16.724.913.030 8.088.267.575 4.807 7.739.758 Dividend Paid Net Income End 1.750 11. Inc.075.882 6.075.117 7.588.209 17.339.831 31.537 6. STATEMENT OF COMPREHENSIVE INCOME For Years Ended December 31 (In Philippine Pesos) 2005 2006 2007 2008 2009 2010 2011 SALES 27.117 1.264.720.496 1.522.014 1.695 Annex B Inzpect Technologies.925.484 - OTHER INCOME Interest Income Other Income Unrealized Gain on Foreign Exchange 705.409.494.370.317 795.463 COST OF SALES 22.030 8.650 186.541.8.625.490.548 10.829 NET INCOME 1.907 TOTAL INCOME 5.946 97.652 1.429.322 19.020.695.191 26.422.421.077 53.983 841.708 - 183.527 ADMINISTRATIVE EXPENSES 3.444.925.341 12.628.513 2.058 13.024 1.164 259.481 42.412 14.029 1.689.200 - 1.800.879.884.215.511 53.289.890 - 426.054.916.292 1.948 TOTAL SHAREHOLDERS' EQUITY 4.202 17.639.913 7.447 66.733 1.609.608 13.945 13 .100.305 11.605 1.785 14.909 12.628.871.232 3.739 976.385 13.503 16.151.127 5.650 10.038.589.936 13.102.999 8.261 4.072.251 OTHER EXPENSES Realized loss on foreign currency transactions INCOME BEFORE INCOME TAX EXPENSE 1.218.319.194.763.686 2.196 1.774 INCOME TAX EXPENSE 289.750 11.799.494.897 113.305 61.493 1.635 2.848 3.507 78.718 28.401.394 875.061.951 16.928.986 65.699 10.946 43.838.063 51.032.527.746 13.600.298 17.458.174.975.335.800 29.874.350 1.240 625.512 501.073.754 9.240.960 GROSS PROFIT 4.