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Kurawa Corporation Limited: A Case Study
Field Study Abstract:
The study evaluated five major aspects of the Kurawa Corporation Limited in Jember, East Java province, Indonesia. These were organization and personnel management, production, marketing, financial, and social aspects.
Of the total production in East Java province, only 0.5 percent was handled by Kurawa Corporation Limited in year 2000, 85 percent by the government, and 4.5 percent by the other private tobacco companies. Its share decreased as its volume of orders decreased, which was caused by anti-smoking campaign of the government and prohibition to smoke in offices and public facilities. The low volume of tobacco being handled, processed and marketed significantly contributed to a very low asset turnover of the firm. Moreover, its actual capacity was only 20 percent (400 tons) of the maximum capacity of 2,006.5 tons. Therefore, its investment resources were being underutilized or being kept idle for some time.
Despite the low production level of the company, its operations still turned out to be profitable because the sales volume level exceeded the break-even point. Productivity indices were far below the expected figure, which means that there was inefficiency in the use of its resources. Although the firm was operating beyond its break-even level, it was found out that the company’s warehouses were not fully utilized to generate sales.
Marketing of tobacco depended on orders from foreign and domestic cigar and cigarette companies. In 2000, tobacco order decreased to 400 tons, generating low figures of marketing ratio and operating ratio. This only shows that the company had been inefficient for it has reduced its marketing effort as shown in the reduction of its marketing budget by 30 percent.
Kurawa Corporation Limited was still liquid and solvent both in the short and long run. However, current assets, excluding inventories were not sufficient to pay for its current liabilities as indicated by very low quick ratios. It may be noted that almost half of the company’s assets were financed externally. Moreover, it could not bring in sufficient net earnings to at least offset the cost of borrowed capital.
Its socioeconomic contributions to the community were reported to be the following: (1) it provided labor employment to the people around the company office and warehouses giving them additional income; (2) it paid income taxes to the government, which in return provides social services, infrastructures, and facilities; and (3) it provided foreign exchange to the country.
Because of the high risk involved, the worldwide anti-smoking campaign and decreases in profit realized from this commodity, farmers should think of changing their crops from tobacco to other crops such as young corn and French beans, either bush or climbing type.