Business Policy Project (Revised)

NATIONAL UNIVERSITY
College of Business and Accountancy
GEARING TOWARDS ASEAN INTEGRATION 2015:

A STRATEGIC MANAGEMENT PAPER FOR
SMALL AND MEDIUM ENTERPRISE (SME)
Farias Transit Company
In Partial Fulfilment for the Course Requirement

BUSINESS POLICY AND STRATEGY
Submitted to:
JOSELITO A. QUINTO, MBA
Submitted by:
BUENAVENTURA JR., ARIEL B.
1st Semester, AY 2014 2015
TABLE OF CONTENTS
Strategic Management Paper for SME
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Introduction ..............................................................................................
Page 3
Business
Profile
..............................................................................................
Page
4
Business Assessment
..................................................................................
Page 6
Vision and Mission Evaluation
..........................................................
Page 6
Financial Assessment
......................................................................
Page 9
SWOT Analysis
..................................................................................
Page 16
Strategic Conclusions
..................................................................................
Page 32
Strategic Recommendations
......................................................................
Page 33
Reference
................................................................................................
Page 37
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I.
INTRODUCTION
Metro cities, of all sizes, face a crisis of urban transport. Despite

investments in road infrastructure, and plans for land use and transport
development, all cities face the ever increasing problems of congestion,
traffic accidents, air, and noise pollution. Large cities are facing a rapid
growth of personal vehicles (two wheelers and cars) and in medium and small
cities different forms of intermediate public transport provided by the
informal sector are struggling to meet the mobility demands of city residents.
Public transport is a critical element of urban transport system. A great
emphasis needs to be given to the public transport system because it offers
the most efficient utilization of limited resources energy and land. At
present, a range of public transport options are available for different city
sizes. A careful analysis is required to select the most appropriate technology
for a given city size.
Rail based systems have often been recommended based on their
capacity to move large number of people (> 30,000 passengers/phpd).
However, they are controversial options of public transport because of the
large financial burden they can impose on city budgets. Also, the existing rail
based systems have shown low ridership, low capacity utilization and high
operating subsidies. Bus transport is the most desirable and sustainable
system from societal perspective. A well planned bus system can provide a
high level of mobility to a large section of the population with least cost.
However, a poorly planned system causes inconvenience to the users, loses
ridership, encourages use of private vehicles and imposes financial burden on
the operator.
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Having featured in Ilocos Times to cater some other SMEs in

the region, Farinas Transit has brought to the Ilocanos the essence
of being a leader not just in governing (Farias is known for being a
strong political clan : Rodolfo, Roger, Rudy etc.) but also in
transportation services. Rooting for success, the company with a
total of 150 employees (below 250 employees to be considered as
Small-Medium Entities in the latest IFRS for SMEs) manage to
continuously provide exceptional transit services to those who
wanted to travel by land going to north particularly in the city of
Laoag, Ilocos Norte. With its 2012 financial report of having a total
assets of Php 131,702,271.24, (between 3 Million to 350 Million to be
considered as Small-Medium Entities according to the latest IFRS for
SMEs) the company is seeking to improve its financial position or at
least maintain the current annual growth to further provide its
passenger the best possible travel experience within the country.
COMPANY BACKGROUND
II.1
Company Profile
Farias Transit is a transportation business that goes from Manila to

Ilocos and vice-versa. It also accepts freight service. The terminal is located in
1238 A.H. Lacson St. Sampaloc, Metro Manila. At present, the company has a
total of 96 employees and 68 buses on services.
II.2
Services
Farias Transit is a public transportation, which transports passengers

anywhere along the Manila to Ilocos route.
Freight is also another thing that Farias Transit caters to, customers leave
their packages and sends them from Manila to Ilocos and vice versa. The
packages that they send include cartons, sacks, boxes and simple letters.
II.3
Company History
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Farias Transit, a sole family proprietorship was founded by the late

Marcelo Vallejos Farias of Vigan, Ilocos Sur together with his wife, the late
Rosa Peralta Luna of Pasuquin, Ilocos Norte.
Four years before the outbreak of the Second World War in December
1941, Marcello V. Farias died and the management of the business fell in the
shoulders of his wife and his two grown up sons Constate and Federico.
In March 1945, during the liberation, Federico brought out the 2 buses
he had kept clandestinely in Piddig and the master mechanic, Federico who
never had any formal education in automotive repairing or the like, was able
to assemble one bus out of the 2 dilapidated buses into good running
condition which he himself drove along its franchises routes from Laoag to
Manila and back. These two buses became the nucleus of the biggest
transportation business plying between Laoag and Manila today.
Federico was the first to introduce air-conditioned buses in the
province, the first to introduce comfort room in the air-conditioned buses and
now the Farias Transportation business is the biggest transportation
business in Ilocos Norte and is managed by the children and grandchildren.
II.4
Mission Statement
To provide globally competitive service to customers, providing a

competitive edge in the Provincial Land Transportation Industry with
the use of state of the art Buses, Amenities and Equipments for the
convenience and comfort of the customers of Farias Transit.
To provide better and faster modes of transportation for the public at

the same time being cost friendly.
To transport our customers and freight as fast and as efficient as

possible.
II.5
Vision Statement
To become the PILLAR of public transportation business in the

Philippines.
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To be the BACKBONE for the advancement of tourism and mobility of

the Filipino people throughout the entire nation.
To be an ADVOCATE of excellent service, socially responsible of its

passengers and customers
II.6
Management
The management team is composed of the brothers and sisters of the late
Federico Farias and his wife Remedios Dreyer Castro who happened to be
the
Ilocos
Norte
governor, mayor and representatives of the destination city of Laoag. From
the operation up to the finance position, farinas siblings manage to take part
and make their parents hardwork paid off. Rodolfo Farias (Chief Executive
Officer), Roger Farias (Auditor), Michael Farias, Chevylle Farias (Finance
Manager), Rudy Farias and Ria Farias are the top management team of the
company, they are operating the company together with their husbands and
wives and with their descendants (Rizalina Farinas Favi HR Manager).
Business Assessment
III.1
No (0) Somewhat (1) Yes

Mission and Vision Statement Evaluation
(2) Total
1. Does the statement describe an inspiring purpose that

avoids
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playing to the selfish interests of the stakeholders?

2. Does the statement describe the companys responsibility
to its stakeholders?
3. Does the statement define a business domain and explain
why it is attractive?
4. Does the statement describe the strategic positioning that

the company prefers in a way that helps to identify the sort
of competitive advantage it will look for?
5. Does the statement identify the values that link with the
organizations purpose and act as beliefs with which
employees can feel proud?
6. Do the values resonate with and reinforce the

organizations strategy?
7. Does the statement describe important behavior

standards that serve as beacons of the strategy and the
values?
8. Are the behavior standards described in a way that

enables individual employees to judge whether they are
behaving correctly?
9. Does the statement give a portrait of the company

capturing the culture of the organization?
10. Is the statement easy to read?
Total Score: 14
Score Interpretation:
More than 15
= Exceptional
10 15
bracket.
= Average
----> The company falls on this
Less than 10 = Needs Improvement

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1. Answer: YES. From its mission up to its vision, the company is directed to
its objective of giving the services for the sake of its customer. The first part
of its mission talks about the convenience and comfort of its customer but
the great thing is that they will execute it in connection with the provision of
giving a competitive edge in their chosen course of business. Further,
obviously the target of the company is for the betterment of the country as a
whole.
2. Answer: YES. All the three bullets in its mission, the company provides its
stakeholder their what is ought to do thing in running its operation. They
make sure that primarily, their doing business for the sake of its stakeholder
mainly for their benefits from state of the art buses to the most convenient
travel experience.
3. Answer: Somewhat. You may dont see the definition of business domain in
the statement but upon digesting the whole statements, you can conclude
that the purposes/goals themselves of coming up and running the business
are the reasons why the customers/passengers would want to take the
services the company has to offer. Thats why the company directed the
statement majority for the sake of its stakeholders.
4. Answer: Yes. Explicitly wise, the company had mentioned the very purpose
of running its business and primarily it is to serve the people with their
competitive edge among any other land transportation companies. Visible on
its first bullet on its mission statement, the company made use of words like
providing competitive edge in the Provincial Land Transportation, use of
state of the art Buses, Amenities and Equipments, etc. And all of these are
served for the convenience of its passenger themselves.
5. Answer: Somewhat. They do not explicitly provide it in their mission and

vision statement but we can impliedly view these with the wordings like
socially responsible of its passengers, transport customers and freight as
efficient as possible, being cost friendly, etc. These are the words that
would give people hints on the values that the company and their people are
imbued with and will inject to the mind of its customers.
6. Answer: Somewhat. It can be implied in the statement as a whole.
Although it is not actually have a linkage, the values can be a guide to the
strategy of the company.
7. Answer: Somewhat. The company had mentioned although not explicitly
that the strategy and values go with the blueprint, essential enough in
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directing their people towards their plan. It can be viewed on the first part of
the mission statement (while the other two are more focused with the
intention of the company) where they discussed the hows of the company
in achieving its primary goal to provide state of the art services.
8. Answer: Somewhat. The answer is patterned to number 5 question wherein
the employees are bound by the values that are link to the companys
objective. With these, they can assess themselves if there are pushing
themselves to their limit. And if they are complying with the companys rules
and values.
9. Answer: Somewhat. Although it is not directly shown, we can view that the
company aims to give us a glimpse of what they are up to and what is the
nature of their services and operation. This we can see in the vision that
Filipino advancement can be achieved through Filipino effort.
10. Answer: Yes. The statement is obviously readable and not just that, it
does not contain any jargon kinds of words for an easy understanding though
some parts need to be impliedly thought of due to its implicit delivery.
III.2 Financial Assessment
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III.2.2Financial Assessment
III.2.2.1
Leverage ratio
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Debt to Equity Ratio

Debt to Equity Ratio= (Total Liabilities / Total Shareholders Equity)
(7,165,074.79 / 106,537,196.45) = .07
A ratio of 1 or 1:1 means that creditors and stockholders equally contribute to
the assets of the business. A less than 1 ratio indicates that the portion of
assets provided by stockholders is greater than the portion of assets provided
by creditors and a greater than 1 ratio indicates that the portion of assets
provided by creditors is greater than the portion of assets provided by
stockholders. This .07 ratio is attractive to the eyes of creditors (but this
varies from industry to industry). Creditors usually like a low debt to equity
ratio because a low ratio (less than 1) is the indication of greater protection
to their money. But stockholders like to get benefit from the funds provided
by the creditors therefore they would like a high debt to equity ratio.
Debt to Asset Ratio

Debt to Asset Ratio = (Total Liabilities / Total Assets)
(7,165,074.79 / 113,702,271.24) = .06
Total debt to total assets is a leverage ratio that defines the total
amount of debt relative to assets. In this company scenario, the debt to total
assets ratio tells you that 6% of the corporation's assets are financed by the
creditors or debt (and therefore 94% is financed by the owners). A lower
percentage indicates lesser leverage and lesser risk and vice versa. Like all
other ratios, the trend of the total debt to total assets should also be
evaluated over time. This will help assess whether the companys financial
risk profile is improving or deteriorating.
III.2.2.2
Liquidity ratio
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Current Ratio
Current Ratio = *(Current Assets / Current Liabilities)
*based on 2012 financial position (latest possible
basis)
(28,840,290.24 / 498,408.15) = 57.86
The current ratio of Farias transit is 57.86 based on 2012 data which implies
a positive outcome because it means that the liquidation of all of a
company's current assets to meet all of its current liabilities is highly possible.
But we should also have to look for the company in a going concern manner
principle of accounting. It's the time it takes to convert a company's working
capital assets into cash to pay its current obligations that is the key to its
liquidity. In a word, the current ratio can be also "misleading" if not seen
thoroughly. In this case, everything is fine since the company has only few
sources of its current liabilities inclusive of tax payable.
Acid test Ratio / Quick Ratio
Quick Ratio = *(Cash & Cash Equivalents + Short-term Investment +
Accounts Receivable)
Current Liabilities
*based on 2012 financial position (latest possible basis)
(22,787,490.24 / 498,408.15) = 45.72
The basics and use of this ratio are similar to the current ratio in that it gives
users an idea of the ability of a company to meet its short-term liabilities with
its short-term assets. Plus the idea of removing those items which could not
generate cash easily and may be in the form of inventory, since the current
ratio is insignificantly higher than that of the quick ratio, it would only mean
that the company is not much dependent on its inventory, the fact, that the
company is a transit company offering transportation service, it is truly
obvious that current and quick ratio yields with a not so much of high
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variance. It does not need to stock large quantity of inventories in the first
place.
III.2.2.3
Profitability Ratio
Gross Margin
GM%= (Gross Profit / *Net Revenue) x 100%
*Sales and Revenue can be used interchangeably
(11,999,325.48 / 50,644,089.84) x 100% = 23.69%
Gross margin tells you about the profitability of your goods and services. It
tells you how much it costs you to produce the product or to render services.
In this case, for every peso in transportation revenue, you earned about 24
cents (rounded up) in profit but spent about 76 cents to make it. Good for the
company since they are already earning more than one-fourth of the
companys total cost since 24cents/76cents is about 31.5%.
Operating Margin
OM% = (Operating Profit / Net Revenue) x 100%
*Sales and Revenue can be used interchangeably

(6,768,004.60 / 50,644,089.84) x 100% = 13.36%
Operating margin takes into account the costs of producing the product or
services that are unrelated to the direct production of the product or services,
such as overhead and administrative expenses. Out of every peso you made
in revenue, you spent about 13 cents in expenses unrelated to the direct
services of Farinas transit. Relatively favorable to the company since it costs
them much lesser centavos to unrelated services compared to gross margin
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percentage since 13cents/76cents is only about 17.1% of cost and almost half
of earnings.
Return on Asset
ROA = (Net Income / Assets) x 100%
(648,854.77 / 113,702,271.24) x 100% = .57%
Return on Assets simply measures how effectively the company produces
income from its assets. This scenario only means that you generate .57 cents
of income for every peso your company holds in assets. It is quite
unattractive in the eyes of the management as well as in the eyes of the
investors since there is a relatively low return on assets because it can be a
possible indication of poor corporate health. A future falling ROA is a sure sign
of trouble around the corner, especially for growth companies. Striving for
sales growth often means major upfront investments in assets, including
accounts receivables, inventories, production equipment and facilities. A
decline in demand can leave an organization high and dry, and overinvested
in assets it cannot sell to pay its bills. The result can be financial disaster.
Return on Equity
ROE = (Net income / Average Stockholders Equity)
(648,854.77 / 106,212,769.065) = .006 or .6%
The higher or lower return on equity doesnt necessarily mean
that the better or poorer the company performance is, for a certain
bracket percentage may be. The ROE tells common shareholders how
effectively their money is being employed. Peer company, industry and
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overall
market
comparisons
are
appropriate;
however,
it
should
be
recognized that there are variations in ROEs among some types of

businesses. In general, financial analysts consider return on equity ratios in
the 15-20% range as representing attractive levels of investment quality.
While highly regarded as a profitability indicator, the ROE metric does have a
recognized weakness. Investors need to be aware that a disproportionate
amount of debt in a company's capital structure would translate into a
smaller equity base. In this case, the company is earning a low percentage on
its equity thus may find ways to improve its operation.
III.3
SWOT Analysis
III.3.1
Strengths
Low number of bus accident is minor strength of Farias. With

good maintenance and repairs of buses and highly skilled bus
drivers, Farias Transit has the least accident reports in public
transportation and because of that Farias is one of the most
trusted provincial transportation businesses here in the Philippines.
As of January 2014, Farias Transit has one of the lowest bus fares as
compared to its competitors.
Competitive fare is a major strength of
Farias because affordable price attracts customers.

Recently, Farias Transit acquired four new buses with comfort
rooms and Wi-Fi. This is a major strength of Farias because
customers nowadays prefer buses with Wi-Fi. Farias will certainly
attract and satisfy customers because of buses with comfort rooms
and
Wi-Fi.
Decreased operating expense by 5.78% from 2011 to 2012 is a
major strength of Farias. The decrease in operating expense

somehow related to companys efficiency.
Good company image and reputation is a minor strength of Farias
Transit. The long existence in the industry is one of the factors why customers
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trust the Farias Transit. It started 1941, for 73 years the company has
established its name in the public transportation industry.
Low employee turnover is a minor strength of Farias Transit.

Having a low employee turnover means Farias employees are happy and
loyal to the company. Low turnover makes it easier for the company to focus
on its business at hand than hiring and adapting to new staff.
III.3.2
Weaknesses
Not having a company website and online booking system is a

minor weakness because competitors like Partas Bus Line, Victory Liner, and
Five Star Bus have already a website and Victory Liner have already an online
booking system; therefore competitors have a huge advantage over Farias
Transit in terms of reaching customers, online advertising, and offering best
services.
The poor terminal layout and work place at Manila office is
minor weakness of Farias. Besides the office is not air-conditioned, the office
appearances are unclean and unorganized. The office furniture is not
comfortable and the bad lighting system can cause eye strains and fatigue to
employees.
This kind of work environment affects the employees
productivity.
According to Ms. Soniata, until today Farias Transit is still operating on
a manual based system. Their business operations are still being checked
and recorded manually. This is a major weakness because operating manually
is time consuming and if the manual record book is lost data will be
completely lost. Not having a marketing officer is a major weakness of
Farias Transit. It is necessary to have marketing officer especially Farias
Transit has a high rivalry of competitors. Farias without marketing officer will
encounter poor targeting and less responsive to customer needs and wants.
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The negative percentage growth in profits incurred from 2010

to 2012 is major weakness. This reflects that the company did not make a
profit for 3 years. The key strategic management issues identified are the
negative compounded percentage growth in profits for the past 3 years
because of high operating expense and the lack of marketing research and
strategy of the firm because of not having a marketing officer.
III.3.3
Opportunities
Construction
of
expressway
connecting
North
Luzon
Expressway (NLEX) and South Luzon Expressway (SLEX) passengers

from southern part of the country travelling to northern part (in this case is
Ilocos) will now have a convenient trip because stop and go trip will not be
a problem anymore.
Inconvenience will be eliminated the fact that the
passengers will be benefited from having 2 trips and will now be sliced-down
to
one
straight
trip.
Introduction of renewable energy sources the company will now

have an alternative on whether to purchase crude oil or ended up with
acquiring
Decreasing
substitute
world
crude
to
oil
prices
the
it.
country
will
be
experiencing an economic development in terms on price of crude oil

because the world is seeing an opportunity in price cut down on this
necessity. The company will get benefits from this as well as the passengers
because the company might lower down the fare depending on their savings
from the said price cut down.
III.3.4
Threats
Threat of substitutes San Miguel Corporation will be proposing to the

Philippine government of building a bullet train system connecting Laoag City
in the northern part of Luzon island, passing through Manila, and finally
ending in the Bicol Region in Southeastern Luzon.The introduction of this
bullet train system that will cover the entire north and south will greatly
affect the operation of Farias transit since there will now be a substitute in
travelling to Laoag.
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Asean Integration 2015 - While turning the ASEAN region into a "single
market and production base" will bring more business and employment
opportunities into our plate (in this case, more bus company will soon arise
and will bring threat not only to the company for having much more
competitors but also to the country as a whole because of possible increase
rate of smoke emission)-and even give us economic leverages in the world
market-this also comes with substantial threats to our outsourcing industry's
steadfast growth over the past few years. With looming ASEAN integration by
2015, the Philippines may be staring at the competition eye to eye as our
Asia-Pacific neighbors try to cut a big chunk off our offshore operations and
outsourcing services in the highly competitive free market. With these, there
is a possibility that the neighboring countries will inject transportation
services since there is already an existing mainstream that other ASEAN
countries like China, Malaysia and Japan have a much higher technology than
that of our country has to offer.
III.5
External Analysis
III.5.1 Political - Legal Segment
Citra Central Expressway- President Benigno Aquino III gave the green light to
Citra Central Expressway Corporation to begin constructing the P26.5-billion
expressway to connect the North Luzon Expressway (NLEX) and South Luzon
Expressway (SLEX). Aside from this new expressway, the DOTC is also
pursuing the construction of the Tarlac to La Union Expressway (TPLEX) and
the widening and improvement of the Batangas expressway (STAR), Abaya
said.1
Relevance:
Construction will start in the second quarter of 2014 and is expected to
be finished in three years. In 2016, this will be an opportunity for Farias
Transit to expand their services in the Southern provinces. The alternative
1 http://www.gmanetwork.com/news/story/328450/economy/business/palaceapproves-p26-5-b-skyway-connecting-nlex-and-slexr
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route of Tarlac to La Union Expressway (TPLEX) is an opportunity because it

will make the transportation faster from Manila to Ilocos.
Bullet train system / Mothballed North rail project
Alvarado said the RDC would either push for the bullet train system or
revive the mothballed Northrail project that would link Metro Manila to the
Clark international airport in Pampanga. He said the proposed bullet train
system would boost the economy of Central Luzon, particularly in the
provinces of Pampanga, Bulacan, Zambales, Bataan, Nueva Ecija, Tarlac and
Aurora.
The proposed railway will cover the entire north and south networks of
the Philippine National Railways (PNR). The north network runs from Manila to
La Union, including a line from Tarlac to San Jose, Nueva Ecija, and a possible
extension to Cagayan. The south network traverses from Manila to Legaspi
City, including a line from Calamba to Batangas City. 2
Relevance:
The proposed bullet train system will be a threat for Farias Transit because
bullet train system can be an alternative and faster way of transportation;
therefore there is a low switching cost from bus transportation to bullet train
transportation.
The proposal construction of railway that will cover the entire north
and south networks of the Philippine National Railways (PNR) will be a threat
for Farias Transit because this can be an alternative way of transportation;
therefore there is a low switching cost from bus transportation to railway
transportation.
Speed Limiters and GPS tracking devices
2 http://www.philstar.com/headlines/2014/01/06/1275577/manila-clark-bullettrain-pushed
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MANILA, Philippines - Bus companies should post hefty safety

performance bonds with the Land Transportation Franchising and Regulatory
Board (LTFRB) that would be forfeited once its vehicle is involved in a road
accident.
The bond should at least be P3 million or double the acquisition cost
of the bus. If the driver knows that this would be forfeited should the bus be
involved in an accident, he would really be careful in driving, he said.
Tolentino also supported the proposal of the LTFRB to install speed
limiters and recorders to limit the speed of passenger buses and record the
events prior to an accident.3
Relevance:
The proposal of bonds and installing speed limiters in public utility
buses nationwide will be a threat because of the cost that will be burden by
bus companies including Farias Transit which they are not yet prepared to
incur.
Mandatory CCTV
The mandatory installation of closed circuit television cameras (CCTV)
in buses has been proposed at the House of Representatives.
Cavite Rep. Elpidio Barzaga Jr. has urged the Land Transportation
Franchising and Regulatory Board (LTFRB) to require bus operators to install
CCTVs as part of the solution to the rising crimes committed in these
vehicles.
3 http://www.philstar.com/headlines/2013/12/19/1269779/bonds-buscompanies-proposed
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Bargaza said the LTFRB should follow what local government units
have been requiring business establishments before they are issued business
licenses and permits.4
Relevance:
The proposal mandatory installation of closed circuit television cameras in
buses will be a threat for Farias Transit if soon implemented. As of December
2012, Farias Transit has 68 buses on services; therefore there will be a great
expense for Farias in installing CCTV. Failure to accomplish the mandatory
installment of CCTV will affect Farias because they will have problems in
their business license and permit that will cause delay in operation and profit
loss.
III.5.2
Economic Segment
World Bank: Crude Oil, $/barrel

Avg. spot price (Brent, Dubai, and WTI)
Table 1.1
Nominal
US
201
201
201
201
201
201
201
201
202
202
105.
105.
105.
102.
100.
100.
99.6
99.1
98.7
97.0
99.2
97.7
93.2
90.8
89.0
87.3
85.6
84.0
76.2
Dollars
Real 2005 87.6
US
Dollars
Source: World Bank Commodity Forecast Price data, October 2013
Figure 1.1
4 http://www.mb.com.ph/solon-urges-ltfrb-to-require-buses-to-install-cctvs/
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120
100
80
60
Nominal Dollars
Real US Dollars
40
20
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2025
In October 2013 The World Bank released its Commodity Forecast,

which predicts that world crude oil price will decrease from $105/barrel in
2012 to $98.7/barrel by 2020. According to Commodity Price Forecast from
IMF, spot average price for crude oil will drop to $86.7/barrel by 2018. 5
Relevance:
The table above shows the forecast for crude oil from 2012 to 2025. The
forecast for crude oil price will slowly decrease until 2025. This will be an
opportunity for Farias Transit because low price of crude oil means low price
of gasoline and diesel, therefore the expense of company for gasoline will be
lessen.
GDP, Inflation rate, and Peso-Dollar Exchange rates forecast
For 2014, the World Bank expects growth of 6.5 percent, also lower
than its earlier forecast of 6.7 percent. The government is aiming for a 6.57.5 percent growth this year.
In 2015, GDP growth is expected to pick up to 7.1 percent, higher than
the earlier forecast of 6.8 percent, the lender said. By 2016, the Philippine
economy will grow 6.5 percent.6
5 http://knoema.com/yxptpab/crude-oil-prices-forecast-long-term-to-2025data-and-charts
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For the Philippines, inflation is seen to settle at 4.2 percent in 2013, 3.8
percent next year before slowing down to 3.5 percent for both 2015 and
2016.
We see continued appreciation of the peso. For this year, it will likely hit
37.50 (against the dollar), underpinned by continued inflows in this part of
the world, Tan said. Peso-dollar exchange rate is forecast to reach 35:$1 in
2014, 40:$1 in 2015 and 41:$1 in 2016.7
Actual
Figure 1.2
8
7
6
5
4
GDP
Inflation
2
1
0
2012
2013
Table 1.2
2012
2013
GDP
7.3 (3Q)
7.0 (3Q)
Inflation Rate
3.0 (3Q)
4.1 (3Q)
Forecast
6 http://www.interaksyon.com/business/78761/world-bank-cuts-ph-growthforecast-for-2013-2014-on-typhoon-impact
7 http://www.philstar.com/business/2013/02/01/903356/achieve-8.5-growthtarget-2016-phl-must-move-value-added-chain
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Figure 1.3
8
7
6
5
4
GDP
Inflation
3
2
1
0
2014
2015
2016
Table 1.3
2014
2015
2016
GDP
6.5
7.1
6.5
Inflation Rate
3.8
3.5
3.5
Relevance:
The forecasted gross domestic product and inflation rate for 2014 up to 2016
is a minor opportunity for Farias Transit. The positive rate of GDP from 2014
to 2016 and decreasing inflation rate from 2014 to 2016 will likely result to
increase profit in all industries.
Actual
Figure 1.4
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50
40
30
Peso-Dollar Exchange Rate
20
10
0
2012
2013
Table 1.4
Peso-
Dollar
2012
2013
42:$1
42:$1
Exchange Rate
Source: national statistics coordination board8
Figure 1.5
42
41
40
39
38
37
36
35
34
33
32
2014
Peso-Dollar Exchange Rate
2015
2016
8 http://www.nscb.gov.ph/stats/pesodollar.asp
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Table 1.5
Peso-Dollar
Exchange
2014
2015
2016.
35:$1
40:$1
41:$1
Rate
Relevance:
The Increasing value of dollar against peso is a threat for Farinas Transit
because when the peso goes down, prices of commodities go up especially
petroleum, therefore the price of petrol goes up and the fare of public
vehicles goes up as well. Therefore affecting the average Filipino greatly who
cannot afford the rise of public fares. In addition there would also be less
income for the company and therefore restraining their budget.
III.5.3
Social Segment
34 deaths daily because of road crashes and traffic congestion

MANILA - Bad driving habits and pedestrians who disobey traffic rules
are to blame for an estimated 34 people who die daily in the Philippines due
to road crashes, a former Land Transportation Office chief said Tuesday.
"If we look at the statistics, although it is spotty, we put the death rate
at 34 deaths daily because of road crashes, just road crashes. That includes
collisions, run overs, everything that involves road traffic. That's about 1.25
deaths every hour," he said in a Mornings @ANC interview.
He also said he would ground entire bus fleets if an accident results in
death. To me, one death is too many," he said. 9
9 http://www.abs-cbnnews.com/nation/12/17/13/ph-34-deaths-daily-due-roadcrashes
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Manila, Philippines Traffic in Metro Manila causes the country to lose a

whopping P140 billion annually, a figure that dwarfs the amounts lost via the
controversial pork barrel scam.
The findings of these studies are essentially the same. They peg the
losses due to traffic at approximately at P140 billion, lamented Galagnara.
Direct losses are attributed to wasted gasoline, lost labor hours,
employment of traffic aides, and wasted electricity; the indirect losses refer
to
withdrawal
of
potential
foreign
investments,
missed
business
opportunities, and reduced capital inflow, he explained. 10

Relevance:
The heavy traffic in Metro Manila greatly affects the industry. The traffic
congestion is one of the major causes of death and road accidents. Also
heavy traffic causes travel time delays, increases fuel cost, and increases air
pollution and carbon dioxide emissions which may contribute to global
warming.
III.5.4
Technological Segment
Transport App
Department of Transport and Communication in partnership with the
Metro Manila Development Authority and Cebu City Government, will host
the first national transport app development competition. WebGeek is
present and actively participating in this event. Everyone is invited and
convened to develop application based on two new kinds of open data; first is
made publicly available by the agencies and second is concerning location
and service information as well as traffic incident streams in Manila and Cebu
City. By a 3-month development period participants will work with volunteer
mentors to build innovative solutions for the transportation challenges. 11
10 http://www.mb.com.ph/metro-manila-traffic-costs-p140b-a-year/
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The role of transit apps is to provide real-time information as to when

buses will arrive at a particular stop. Transit apps are able to do this by
accessing real-time bus location information. While the term "transit app"
refers to an application available for a smart phone, particularly either the
Apple iOS or the Android platforms, most transit apps are also available on a
computer, so even if you are stuck in the phone "dark ages" you can use
them to plan a perfect exit from your home or workplace. 12
Relevance:
As to government trying to develop transit app that will provide real time
data for citizen, this could be an opportunity for Farias Transit to apply it in
its operation. Integrating this kind of technology will surely provide better
service and will attract customers.
GPS tracking system
With todays increased fuel costs and tight budgets at all governmental
levels, bus companies are under pressure to perform with fewer resources.
Luckily, technology is making it easier. One of the most effective ways for a
vehicle-based organization to stay up and running and competitive is by
implementing GPS-based tracking, available in a variety of software platforms
from numerous vendors. Almost everything monitored by GPS vehicle
tracking can work to help bring down fuel expenditures for an organization.
For example, speeding is a huge factor in high fuel usage. A GPS tracking
solution can provide speed information and send alerts when a vehicle
exceeds the speed limit.
Excessive idling can also contribute to high fuel costs. A GPS fleet
tracking system can help reduce idling times by alerting the user whenever a
vehicle idles longer than a pre-set duration. By using the tools in GPS fleet
11 http://webgeek.ph/dotc-philippine-transit-app-challenge/
12 http://publictransport.about.com/od/Transit_Technology/a/Transit-Apps.htm
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tracking, a bus company can certainly serve its clients better. Getting reports
of a vehicles route can help the user track arrivals and departures. By
providing accurate and verifiable proof of services, its a valuable tool for
reviewing routes and frequency of stops, which can help a company
streamline operations and run more efficiently. 13
GPS tracking also delivers accurate, up-to-date mapping with traffic
conditions. Some GPS solutions have partnered with trusted resources such
as Google Maps, which provides zoom capabilities all the way down to street
level. Dispatchers can use this information to adjust routes if necessary, help
drivers avoid delays or make last-minute changes to service.
GPS fleet tracking can also help improve security and safety for drivers
and passengers alike. Example a bus go missing for whatever reason, GPS
can help a company recover it and any on board equipment quickly. Some
systems even offer features that send an alert if a vehicle is used during offhours. If the bus goes off its route at any time, the system will know. And in
the unlikely but not undocumented event that a bus has been stolen, there
isnt a faster way to track it down.14
Relevance:
Integrating GPS tracking system would increase security and safety,
reduce fuel costs, and improve customer service. This could be an
opportunity for Farias Transit to provide better service and attract
customers.
Hybrid bus
Hybrid bus technology is similar to that used in hybrid cars and trucks, with
13 http://www.masstransitmag.com/article/10453259/gps-monitoring-keepsbuses-on-track?page=1
14 http://www.masstransitmag.com/article/10453259/gps-monitoring-keepsbuses-on-track?page=2
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options for both parallel and series drive train designs.
These buses employ
similar technology including regenerative braking, electric motors, and

battery storage. One main difference is that most hybrid buses are coupling
diesel-fuelled engines with electric motors instead of the typical gasolineelectric hybrid configurations available in light duty vehicles. Maximizing the
benefits from these buses requires optimizing the hybrid system for the
transit bus routes, which might be affected by the terrain the bus travels or
whether the bus frequently travels at freeway speeds or stays on city streets.
Hybrid diesel- electric buses are available, and these can offer low or
zero local air pollutant that would benefit the Ecological crisis that is in air
pollution that contributed greatly in Global Warming. Also the noise emission
that a hybrid vehicle could release is extremely low when operated in electric
mode. Hybrid buses, using an on-board battery together with a diesel engine,
offer emissions benefits, especially when operating in urban areas on battery
power, with regenerative braking.
15
Relevance:
As of January 2014, the hybrid bus in the Philippines is only available in
Makati City.16 The trend of Hybrid transportation is not yet adopted by
provincial bus line operators because of high cost for using that technology
and its more advisable to use it in a short distance travel. Another thing to
consider is the location and building of charging station for hybrid buses.
Time will tell how far manufacturers can go to improve emissions and to
develop hybrid transit buses in long distance travel, while lowering the
overall cost of the buses which would attract investors greatly therefore
creating an opportunity.
15 http://archive.is/7uc2
16 http://www.mb.com.ph/six-hybrid-buses-ply-makati-city/
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III.5.5
Environmental Segment
Senate Bill no. 164 introduced by Senator Trillanes IV, entitled Electric,
Hybrid and Other Alternative Fuel Vehicles Incentives Act of 2013. Its an act
providing
incentives
for
the
manufacture,
assembly,
conversion
and
Importation of electric, hybrid and other alternative fuel vehicles, for other
purposes.17
The Senate bill no. 164 will grant fiscal and non-fiscal incentives for the
importation and manufacture of electric, hybrid and other vehicles that use
alternative sources of energy such as, but not limited to, solar, wind,
hydrogen fuel cell, compressed natural gas or liquefied natural gas, methane
and liquefied petroleum gas. Manufacturers and assemblers will be exempted
from paying and duties, as well as value-added tax for purchase and
importation of raw materials, spare parts, components and capital equipment
used in the manufacture or assembly of AFVs for nine years. 18
Relevance:
This bill will promote the widespread use of hybrid and vehicles using
alternative fuels in the country in order to protect the environment and
reduce the effect of global warming. This senate bill will somehow reduce the
problem of manufacturers in terms of cost in importing and producing hybrid
vehicles. This will only create an opportunity for Farias Transit if the prices of
hybrid vehicles will be affordable and the problem in charging station will be
resolved.
Senate Bill no.26, introduced by Senator Pia Cayetano entitled
"Sustainable Transportation Act of 2013. Its an act promoting sustainable
and alternative modes of transportation and other mobility opportunity to
17 http://senate.gov.ph/lisdata/1599013227!.pdf
18 http://gotecotech.com/philippine-senate-approve-alternative-fuel-vehicleact/
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improve air quality, increase efficiency, reduce congestion and contribute to

positive health impacts in our society. 19
The purpose of Sustainable Transportation Act of 2013 is to develop
sustainable and alternative modes of transportation so as to reduce
greenhouse gas emissions, manage energy consumption, use precious urban
areas efficiently, reduce time and travel costs, as well as promote an active
lifestyle.
The
bill
mandates
the
Department
of
Transportation
and
Communications (DOTC) and the National Economic Development Authority

(NEDA) to come up with a sustainable transport action plan that would
achieve a mode shift target over a period of time. The bill includes the
provision of adequate walkways that allow safe pedestrian passage. The bill
also includes the designation of bike lanes, and establishment of bicycle
parking spaces and bike racks, to promote bicycle use. SB No. 26 also
recognizes the fact that rail transport systems are sometime too expensive
and will take some time to construct. Because of this, the bill recommends
the commissioning of Bus Rapid Transit (BRT) systems wherein sections of
roads be designated exclusively for buses that would operate like trains. 20
Relevance:
The SB No. 26 will help reduce the daily traffic jam, the smog, and
other air pollutants produced by vehicles. The proposed Bus Transit System
(BRT) will be an opportunity for Farias to have a safe and secure public
transport system.
IV.
Strategic Conclusion
19 http://senate.gov.ph/lisdata/1583413072!.pdf
20 http://www.thelobbyist.biz/congress-news/item/230-sustainable-masstransport-seen-as-solution-to-country%E2%80%99s-traffic-woes
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V.
Strategic Recommendation
V.1Marketing
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The following are the possible marketing strategies that Farias Transit may
execute; Printed Materials, Branding of the System, Bus Stops, Signage and
Facilities Coordinated Marketing.
Printed Materials
Fariass route-by-route maps are good. They are drawn to scale,
include stop locations and highlight major time points and destinations.
Although they are prepared in color and are available in color on-line and on
bus stop signs, they are printed and distributed to the public in black and
white in the quarterly Headways publication. Route maps could be enhanced
with the inclusion of more landmarks, additional street names (for some
minor cross streets), locations of TVMs and other resources, and by improving
the visibility of stop locations (dots) on the routes, which make it difficult to
discern whether the dot references an inbound or outbound stop, or both.
Farias system wide map could be more useful. In most communities, the
system wide map is one of the most important tools for understanding how
the routes work together to allow someone to travel from origin to
destination.
Branding the System, Bus stops, Signage, Facilities
Farias brand identity is their opportunity to position the company and
service to their ideal customer or client. From the logo to their web site and
encompassing print work as well, the brand identity gets built piece by piece.
This is the most important component of creating the companys graphic
look. A strong logo is a memorable mark that reflects the personality of the
company; this is also applicable in terms of modifying the overall look of the
bus stops, signage and its facilities. And we cant overstate how critical it is to
get it right. Thus, the company should think of the most remarkable way of
imposing and creating an outstanding branding system which could lead
them to outwit and outplay their competitors in terms of marketing
themselves.
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Coordinated Marketing
With
todays
fast-paced,
hypercompetitive
marketplace
business
scenario, the company should find ways on making themselves distinct from
the others. In this age of self-service, customers are being overwhelmed in a
sea of choices. In most markets theres so much product traffic that
messages never get a chance to seep into customers consciousness. Given
the current environment of the company, they must (1) put their money
where their mouth is (2) think big picture. Firstly, put all the pieces in place to
deliver on your promises. Make your unique image not only believable but
also real. Secondly, Use your coordinated campaign to inspire an emotional
reaction in customers. Make your brand part of their psyche. Powerful ideas
are best communicated with bite size chunks of information and simple,
compelling images, after that is the only time when the company should
combine the ideas to create much larger picture of it.
V.2
Operations
The fact that the company has the relatively lowest rate of bus
accident compare to its competitors, we can view the operation of Farias
transit as a good one. But upon scrutiny, there is a possibility that the
problem would arise in some other cases such as at the end of the
passengers. So firstly, the very primary thing to do is HOLD (Have the
Operations Limit the Dilemma) and by this the company has to consistently
process the maintenance of bus engines and the internal condition of each
bus (from the doorstep up to the seats). This will safeguard the passengers
trip from having an accident in all cases, because with good and secured
buses, chances of having a dilemma are very remote. Secondly, the
passengers may demand things that would slow down the operation or worse
comes to worst will stop the operation on that day. For example, there are
some passengers that may demand for a room temperature air condition or
those who are experiencing dizziness when riding an air-conditioned bus in
which could not be favorable to all other passengers. Remedy is to neglect
the demand or to communicate with those passengers and try to convince
them that it is not favorable to all other passengers or refund the payment
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and continue with the operation. To avoid circumstances like this, the
company should have ordinary buses for those people who felt unease in
riding air-conditioned bus to separate them to those who want to be in airconditioned ones.
V.3
Finance and Accounting
The company must inject more buses in the business to cater an

increasing demand of its customers especially during holiday seasons and
most probably it would cost them much given their low rate of return on its
assets and equity during its current operation, but the good thing here is that
the capacity to cater passengers will be stretched out and in the near future,
the cost will be recovered then. Moreover, waiting time for the customers to
be accommodated given these additional buses would now be reduced to
even half depending on the number of additional buses and other factors will
soon follow such as opportunity cost that could have forgone if the
passengers wont be accommodated because of lesser buses.
V.4
Research and Development
Since the company has already reach halfway its objective in terms of
development because of its wifi on board, comfort room inside the buses and
spacious deluxe type buses, the only thing that the company is lacking in all
of its buses is high technology monitoring, CCTVs are only installed in its
office as well as in waiting areas in front of it and so in order for them to be
sure that every passengers safety is lock and stock, they shall be installing
also cameras inside their buses. Installation of CCTV cameras in all
buses the company would not want to receive any violent reactions coming
from their customers whether because of the fault on their part or on the part
of the customers and with other customers such as theft, brawl, negligence
etc. Letting them know that there are installed CCTV cameras would inhibit
them from doing such actions because proof will be provided having installed
these cameras on each bus. Further, the company can now monitor the bus
for maintenance and locating purposes.
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V.5
Human Resources
Becoming Family friendly since the company has low employee

turnover, the only thing that Human Resource manager has to do with it is to
(1) maintain this kind of work environment and (2) they should engage in
good times. Firstly, being family friendly means that your companys
scheduling and general operating policies take into reasonable account the
personal needs of the employees in particular their desire to balance job
responsibilities with family responsibilities. This is essential if you want to
retain top performing employees.Its become increasingly apparent that
family-oriented policies do more than simply enhance a companys recruiting
initiatives. They also produce a number of bottom-line benefits such as
reduced absenteeism, fewer disability claims and fewer workplace accidents.
Practices and policies typically found in companies pursuing work and
family initiatives include flexible scheduling (flextime), telecommuting,
individual arrangements, employee assistance programs (EPAs) and benefit
programs that enable employees to select those benefits that are relevant to
their particular needs.
Moreover, So many workers see HR only in disciplinary conversations
that its no surprise the department has the aura of the Principals Office. The
perfunctory anniversary card from HR, or the Employee of the Month
handshake do nothing to assuage that image. If HR occasionally strolled the
workplace, stopping to chat about a new company initiative, or the
ventilation or whatever, it would help to remove some of the uh-oh that
accompanies an HR sighting. Even more effective would be to meet with high
achievers informally to get their insight on company activities or see how
they do what they do that could get communicated to managers.
V.6
Information Technology
The company should create their own website and not just an account
on twitter and facebook. We all know that these two sites are helpful in terms
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of disseminating information regarding companies (from its history up to what

it caters to the public) but these social media sites are lacking in terms of
data and account security (if the system is having a network traffic due to
continuously accelerating site visiting around the globe) they will need to
shut down or even restore all accounts, the company will lose not just half
but all of its security upon reboot and more importantly the company does
not have real ownership on facebook domain. With their own website, they
will be forced to monitor everyday transaction and queries with their
passengers and have to maintain and update their site, essential in keeping
themselves in touch with their customers.
The company must also have an automated callback system to confirm
rider reservations. It will not just benefit the company from having a
congested telephone lines in used but also it wont be losing now potential
customers because what they say is what they get with this system.
Furthermore, there will no longer be an existing logbook reservation and the
reservation process is more secure now with database management.
Reference Material:
David, F. R. (2012). Strategic Management: Concepts and Cases 13th Edition.
PearsonEducation South Asia Pte. Ltd.
Internet Sources:
1. http://en.wikipedia.org/wiki/Fari%C3%B1as_Transit_Company
2. http://www.gmanetwork.com/news/story/328450/economy/business/pal
ace-approves-p26-5-b-skyway-connecting-nlex-and-slexr
3. http://www.philstar.com/headlines/2014/01/06/1275577/manila-clarkbullet-train-pushed
4. http://www.philstar.com/headlines/2013/12/19/1269779/bonds-buscompanies-proposed
5. http://www.mb.com.ph/solon-urges-ltfrb-to-require-buses-to-installcctvs/
6. http://knoema.com/yxptpab/crude-oil-prices-forecast-long-term-to2025-data-and-charts
7. http://www.interaksyon.com/business/78761/world-bank-cuts-phgrowth-forecast-for-2013-2014-on-typhoon-impact
8. http://www.philstar.com/business/2013/02/01/903356/achieve-8.5growth-target-2016-phl-must-move-value-added-chain
9. http://www.nscb.gov.ph/stats/pesodollar.asp
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10.http://www.abs-cbnnews.com/nation/12/17/13/ph-34-deaths-daily-dueroad-crashes
11.http://www.mb.com.ph/metro-manila-traffic-costs-p140b-a-year/
12.http://webgeek.ph/dotc-philippine-transit-app-challenge/
13.http://publictransport.about.com/od/Transit_Technology/a/TransitApps.htm
14.http://www.masstransitmag.com/article/10453259/gps-monitoringkeeps-buses-on-track?page=1
15.http://www.masstransitmag.com/article/10453259/gps-monitoringkeeps-buses-on-track?page=2
16.http://archive.is/7uc2
17.http://www.mb.com.ph/six-hybrid-buses-ply-makati-city/
18.Http: //senate.gov.ph/lisdata/1599013227!.pdf
19.http://gotecotech.com/philippine-senate-approve-alternative-fuelvehicle-act/
20.Http: //senate.gov.ph/lisdata/1583413072!.pdf
21.http://www.thelobbyist.biz/congress-news/item/230-sustainable-masstransport-seen-as-solution-to-country%E2%80%99s-traffic-woes
22.http://en.wikipedia.org/wiki/List_of_bus_companies_of_the_Philippines
23.http://en.wikipedia.org/wiki/Fari%C3%B1as_Transit_Company
24.http://phys.org/news/2013-03-businesses-revenue-socialmedia.html#jCp
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NATIONAL UNIVERSITY

College of Business and Accountancy

GEARING TOWARDS ASEAN INTEGRATION 2015:

Farias Transit Company

In Partial Fulfilment for the Course Requirement

1st Semester, AY 2014 2015

Strategic Management Paper for SME

Metro cities, of all sizes, face a crisis of urban transport. Despite

Strategic Management Paper for SME

Having featured in Ilocos Times to cater some other SMEs in

Farias Transit is a transportation business that goes from Manila to

Farias Transit is a public transportation, which transports passengers

Strategic Management Paper for SME

Farias Transit, a sole family proprietorship was founded by the late

To provide globally competitive service to customers, providing a

To provide better and faster modes of transportation for the public at

To transport our customers and freight as fast and as efficient as

To become the PILLAR of public transportation business in the

Strategic Management Paper for SME

To be the BACKBONE for the advancement of tourism and mobility of

To be an ADVOCATE of excellent service, socially responsible of its

No (0) Somewhat (1) Yes

1. Does the statement describe an inspiring purpose that

Strategic Management Paper for SME

playing to the selfish interests of the stakeholders?

4. Does the statement describe the strategic positioning that

6. Do the values resonate with and reinforce the

7. Does the statement describe important behavior

8. Are the behavior standards described in a way that

9. Does the statement give a portrait of the company

10. Is the statement easy to read?

----> The company falls on this

Less than 10 = Needs Improvement

5. Answer: Somewhat. They do not explicitly provide it in their mission and

Strategic Management Paper for SME

Strategic Management Paper for SME

Strategic Management Paper for SME

Debt to Equity Ratio

Debt to Asset Ratio

Strategic Management Paper for SME

Strategic Management Paper for SME

*Sales and Revenue can be used interchangeably

Strategic Management Paper for SME

Strategic Management Paper for SME

recognized that there are variations in ROEs among some types of

Low number of bus accident is minor strength of Farias. With

Competitive fare is a major strength of

Farias because affordable price attracts customers.

major strength of Farias. The decrease in operating expense

Strategic Management Paper for SME

Low employee turnover is a minor strength of Farias Transit.

Not having a company website and online booking system is a

This kind of work environment affects the employees

Strategic Management Paper for SME

The negative percentage growth in profits incurred from 2010

Expressway (NLEX) and South Luzon Expressway (SLEX) passengers

Inconvenience will be eliminated the fact that the

Introduction of renewable energy sources the company will now

experiencing an economic development in terms on price of crude oil

Threat of substitutes San Miguel Corporation will be proposing to the

route of Tarlac to La Union Expressway (TPLEX) is an opportunity because it

MANILA, Philippines - Bus companies should post hefty safety

World Bank: Crude Oil, $/barrel

In October 2013 The World Bank released its Commodity Forecast,