Case Study in Clearwater Seafood

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Firstly, since issuing extra units would dilute shareholder’s benefits and worsen the situation, a better choice would be issue bonds in the market to buy back some units and then use the rest to make distributions. The benefits for this strategy is that it could enhance the shareholding of founders of the company, and by increasing the leverage of the company, it could avoid potential take overs by Clearwater’s competitors.

After that, there are several ways to tackle the foreign exchange risks. The first one is to negotiate with customers to transact in Canadian dollars since Clearwater’s customer relationships are fairly solid. This strategy could largely reduce the company’s foreign exchange exposure even if only the top 10 customers (25% of sales) would pay in home currency. The second method is to use options and futures to hedge instead of forwards which are not standardized, so the default risk and liquidity risk of derivative transactions could be reduced. And the last method is to fund foreign liabilities with foreign assets in order to reduce the mismatch risk occurred in hedging. It is notable that foreign exchange risk could not be fully eliminated since the company operates as an exporting company evolving a number of different countries.

As for the business strategy risk and the company’s long-term development, the priority would be shift the market focus from Europe, USA and Japan, which are the top three market in 2005, to China, India and USA. This is because of the prediction of future market size and consumption trends. China, India and USA would be the major contributors to the market growth due to their increase in populations. In order to achieve this adjustment, the project developing in Taiwan was a very good start as the city is close to China, India and Japan. And the company could take over some Asian seafood companies to open up the market and it could also diversify species in Asia. More importantly, the company should shift to a decentralized structure to increase its effectiveness in decision making. This could help the company to adapt to local markets easier, especially for those with different cultures such as China and India.

Moreover, as listed in the SWOT analysis attached in the appendix, the company has many obvious strengths which should be enhanced to increase its competitiveness in the global market. A major one is that the company owned the majority of shellfish TAC in Canada and these species took 86.9% of total sales in 2005 (exhibit 6), so the company should focus on differentiation with these products. Combining with the technology innovation, it would be easy for the company to provide unique shellfish products with high quality and freshness, which are very hard to achieve by competitors (exhibit 10). And the last suggestion is that the company should establish and promote a brand with the company’s advantages in freshness and quality of food, specialization in shellfish, and its corporate mission of sustainable seafood excellence. This strategy could help the company to be known by unfamiliar markets such as China (1.8% sales in 2005), Asia (4.3% sales) and Others (0.5% sales).

Conclusions

In conclusion, my personal recommendations are:

For short-term investors’ dissatisfaction:

- Issue bonds to buy back shares and to make distributions

For foreign exchange risks

- Deal with major customers in Canadian dollars

- Use options and futures to hedge instead of forwards

- Use foreign assets to fund foreign liabilities.

For business strategy risks and long-term company development

- Shift market focus to China, India and U.S.

- Take over Asian companies

- Decentralize the management structure

- Focus on differentiation in products with large ownership in TAC

- Establish a brand and promote it

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Appendix:

Table 1: Clearwater Seafoods Foreign Currency Translation Expenses

2003

2004

2005

Foreign currency translation (in 000$)

1,443

3,006

1,236

Changes in %

108.32

-58.88

Source: Clearwater Seafoods Case

Graph 1: Clearwater Seafoods Sales in Geography

Source: Clearwater Seafoods Case

Table 2: SWOT Analysis for Clearwater Seafoods[pic 1]

Strength:

- Global leader in shellfish trading

- Largest holder of offshore rights to harvest premium species in Atlantic Canada

- Strong customer base

- High product quality and freshness

- Product differentiation

- Vertical integrated

- Long time founding since 1976 comparing to its competitors

Weaknesses:

- Investments in long-term assets which may cause cash-flow shortage

- Declining shareholders’ unit value

- No retail brands

- Low effectiveness in management due to centralized structure and multinational operations

Opportunities:

- New market opportunities in growing-demand market such as U.S. and China

- Development in Taiwan provides more market opportunities

- Previously unexploited species