Case Study On Oita Technology Inc(OTI): Meeting IPO Requirements

Prepared For

SUZUKI KANICHIRO Course Coordinator Leadership and Organizational Behavior Professor Ritsumeikan Asia Pacific University

Prepared By

Md. Aynul Hoque Student ID: 52111604 Graduate School of Management Ritsumeikan Asia Pacific University

Introduction: Oita Technology Inc. (OTI) is a Japanese company which is doing its business in detective sensor technology since its inception in 2005. It has been awarded as a high-tech company in Oita and its products were selected as Local Excellence Award in 2009 by Ministry of Economy, Trade and Industry (METI). So the company has high reputation in the market. But the company, recently, has been facing severe market competition when US/European competitors are trying to sell high value added products and Asian competitors are trying to sell cheaper, as low as half that of OTI prices, low-end products in Japanese market. As a result, OTI will have to compete with some competitive strength to continue its stable growth and it may need some structural changes of the company and additional financing.

Problem Identification: There are several inter-related problems can be identified toward the movement of IPO issuing in 2016 and continue stable growth in the coming years. a. The single most important problem is to issue IPO or going public to create and to set the pace of maximizing company wealth in 2016 b. To change the company structures, including job and documentation systems, that is necessary to comply with the requirements for IPO c. The highly skillful engineers in the industry are quite limited and it is very crucial for OTI because its core business is in highly detective sensor technology where skillful engineers are inevitable to continue and grow d. The employees are bit tired with Dr. Suzukis assertive way of management and demands of much performance e. Company is facing increasing competition in terms of both in high-technology and price

Organizational and Strategic Analyses: SWOT Analysis: The SWOT analysis is very useful tool for analyzing and decision-making for all kinds of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. It is commonly presented and developed into a 2x2 matrix that measures a business unit (SWOT Analysis, 2011) SWOT analysis reveals the following strengths and weaknesses of OTI that will .guide us for the proper recommendations to issue IPO and solve other problems of the company.

SWOT Analysis of OTI Strengths Core business is in highly detective sensor technology which is not easily imitable by others Products got METI award and it has high reputation Skillful key people like Dr. Suzuki and Mr. Saburo Saeki There is a hybrid salary system of 50% seniority and 50% performance based. This leads to the better performance by the employees Sales and marketing department is organized like Eastern Japan unit, West Japan, International sales unit etc Weaknesses Skillful engineers are limited in the industry and company that is very much core requirement for its kind of business OTI can produce good products only with high cost but they should be able to produce with less cost too Company is not in stock market to outsource its financing Employees are not yet prepared to comply with IPO requirements.

Opportunities By issuing IPO, OTI can have more financing & broader access to financial market to grow its plants, equipments and go for more sales and achieve economies of scale IPO requirements will lead to better performance by employees, better documentation Going public by IPO will lead to the path of maximizing company wealth With more funding, OTI can

Threats EU/USA competitors are competing with high value-added products while Chinese/Korean are combating with low price products IPO will require disclosure of information more than ever before. Disclosures include possible lawsuits, financial losses, criminal actions, etc.

IPO will lead to more controls of Board of Directors, employees of OTI .by external agencies such as Japanese Govt., stock exchanges and some other financial regulations even in Japan and worldwide

emphasize both on high value-added and low cost products depending on the market requirements and

competition Cheap source of capital: For private companies with debt, equity markets

Intense scrutiny from shareholders and the investment community.

provide a much cheaper source of capital since no interest payments are required and there is no repayment of principal. Securing long-term customer

Management will be under intense pressure to deliver growth and strong earnings. Loss of control - Once pubic, the company could be a victim of a hostile takeover

relationships. Customers want to do business with a company that will be around for the long-haul. Public companies are viewed as long-term providers of services and products. Source: Adapted from Chapman, 2011

Issues related to IPO: According to Matt H. Evans critical characteristics for successful IPO candidates are as below: Great Management Team The management of the privately held company must have a passion for growing the business with a proven track record of results. Consistent Long-Term Growth The Company is demonstrating consistent sustainable growth and if given additional capital, higher levels of growth are obtainable. Out-performing the Competition The privately held company is clearly outperforming the competition. Outstanding Business Model A business model that works and has been tested against the marketplace over time, backed up by solid financial performance. Product and Service Lines are Well Defined Growing market demand for products and services. Strong Reputation OTI should make an established presence with major stakeholders (customers, industry analyst, etc.). Market awareness and recognition are critical; otherwise additional capital may not leverage the intangible strengths of the company. Relationships with investment bankers should be in place long before you go public. Minimal conflicts of interest Related party transactions, family members serving on the Board and other apparent conflicts will unravel your IPO; especially when the legal authorities start to do their due diligence. Therefore, OTI has to cleanse its corporate soul before going public.

Recommendations: Perhaps one of the biggest problems has to do with culture. Going pubic is a transformation of corporate culture and cultural change is extremely difficult for any company. Its not possible to change the habits and cultures of employees overnight. Going public today is a process I wouldnt wish upon my worst enemy. It has become too difficult for companies to go public. While there was probably too much trust three to four years ago, now the pendulum has swung too far in the opposite direction. I think that as a result, were going to see significantly fewer private firms issuing IPOs.

- Peter Thiel, former CEO of PayPal, The Risky Business of Going Public by Helen K. Chang

OTI should do following things to issue IPO successfully in 2016. These have to be done to solve the issues related to IPO, to resolve the weaknesses from SWOT analysis and to capitalize the opportunities and guard against threats too.

Build an effective team management: As OTI will prepare for its IPO, it must expand its management capabilities. The investment community wants to be sure that the management running a company is not a one-man band. This may require adding individuals with public company experience in marketing, operations, development, and finance. OTI may need to put a CFO in place who has previously been through the IPO process or hire some consultants. The team needs to be cohesive and share a long-term vision for the company to obtain maximum financial return and valuation.

Develop budgets and measure performance Throughout the IPO process, underwriters will ask for financial projections and will compare a companys historical performance to its past budgets. Accordingly, OTI has to establish a financial planning and analysis team, which should put a budget and forecasting process in place. After OTI goes public, budgets and projections will become an important tool for research analysts. Furthermore, this information and a public companys ability to meet its own earnings estimates and The Streets earnings estimates can have a significant impact on its stock performance. Therefore, accurate budgeting and forecasting is critical for a successful IPO, as the market gives very little

margin of error in that area and punishes the stock for any significant underachievement. Training for OTIs Key Engineers: Since the availability of skillful engineers is less in the industry, OTI has to arrange long-term training programs for its key engineers and subordinates step-by-step method. Such training is necessary to build new high-tech and value-added products to compete with US and EU competitors.

Introduce Cost reduction programs: OTI should introduce various cost reduction methods and train its employees accordingly to compete with Chinese and Korean companies where low cost products are the market. This ability will increase OTIs market reputation and help for successful IPO in the capital market.

Besides these OTI has to do following things to be successful and meeting requirements of IPO. a. Appoint independent members to your board of directors

b. Create an audit committee c. Evaluate corporate governance principles and practices

d. Build a positive public image: it may require hiring public relations officer or firm build relationships with an investment banking firm, law firm, accounting advisors, and independent auditor e. f. Establish incentive compensation plans: it helps to motivate employees Have your financial statements audited and resolve potential disclosure and accounting issues

References 1. Chapman, A. (2011). SWOT Analysis Method and Example. Retrieved Dec 4, 2011, from Businessballs.com:http://www.businessballs.com/swotanalysisfreetemplate.htm 2. Take Your Company Public by Drew Field (ISBN 0-13-882242-5) 3. Going Public: How to Make Your Initial Stock Offering Successful by Martin Weiss (ISBN 0-8306-3012-0) 4. Initial Public Offerings: A Strategic Planner for Raising Capital by David P. Sutton and M. William Benedetto (ISBN 0-917253-77-9) 5. Going Public: Everything You Need to Know by James B. Arkebauer (ISBN 0-0000-000000) 6. Roadmap for an IPO, A Guide to Going Public. Price water house coopers 7. Robbins, S. P., & Judge, T. A. (2012). Essentials of Organizational Behaviour. Essex, England: Pearson Education Limited.