Audit Report For Mainland Finance Corporation

I. Current Situation

A. Current Performance:

Mainland Finance Corporation is a Filipino-owned domestic financing corporation and duly registered with the Philippine Securities and Exchange Commission (SEC) with an authorized capitalization of ten million pesos (P10,000,000.00). Initially registered as a lending company on January 22, 2001, it was finally granted a Certificate of Authority to operate as a financing corporation on October 17, 2003, pursuant to the rules and regulations implementing the provisions of Republic Act 8556, otherwise known as the Financing Act of 1998. At present, its business operation caters mainly to client needs within Cebu Province. Its main office is located at TPE Building, Banilad Road, Cebu City. It is manned by seven professional employees. So far, the company has opted not to open branches. The company made a revenue turnover of P14,037,025.00 by December 31, 2010 and recognized profit after tax of P598,432 in the same year. Its application for an increase in authorized capitalization from its present P10M to P20M is under process with the Philippine Securities and Exchange Commission.

B. Strategic Posture:

1. Mission:

The present mission statement of the company is To build a strong and profitable financing organization that would first satisfy the needs of our customers by providing quality

service and would support and nurture our officers and staff by providing an ideal workplace, opportunities for growth and development and fitting recognition of their contributions.

2. Strategy:

Mainland Finance Corporation adopted the following generic strategies when the company launched its financing and lending products in the market in March 2003 upon SEC approval of its corporate license as a financing company.

The strategies of Mainland Finance Corporation are classified in terms of revenues, capitalization, marketing and price.

Revenue Strategy: Develop increased net market niche through appropriate and aggressive product presentations to associations in the various consumer industries. Strengthen monitoring of receivables.

Capitalization Strategy: Maximize price competitive edge by increasing infusion of internally generated capital from the stockholders and bring about lesser portfolio cost.

Marketing Strategy: Maximize populating pool of conduit sales agents paid on commission

As a result of these strategies, Mainland Finance Corporation made a revenue turnover of P14,037,025.00 by December 31, 2010 and recognized profit after tax of P598,432.00 in the same year. In like manner, Mainland Finance Corporation established a 7% net market demand niche in 2010 and established itself as one of the leading financing companies of the non-quasibanking segment in the Province of Cebu.

Considering the bottom line of the business is its profitability ratio comparable to industry standards.

3. Policy:

The present Code of Ethics of Mainland Finance Corporation is embodies in its Manual of Personnel Policies and Procedures that are made clear upon hiring.

An employee should: i. Exercise corporate citizenship and protect the corporate interest by conducting business affairs in fairness, honesty, and in compliance with the law. ii. Protect with zeal and caution confidential knowledge of the processors, systems, or other important during or even after employment with the company. iii. Uphold the corporate interest and not grant undue favors especially on matters of loan approvals, in hiring and similar activities.

iv.

Engage only in such private activities or business that are consistent with his responsibilities as an employee and are not detrimental to the interest of the company.

v.

Exercise utmost discretion in accepting personal favors or gifts from individuals or entities seeking or doing business with the company and refuse any gift from individuals that might be considered a bribe in any form.

vi.

Utilize company property, funds, equipment, and time solely for the purpose required by the company.

vii.

Seek clearance from management prior to engaging in outside work or assuming a simultaneous position in other companies.

viii.

Accept responsibilities to ensure that the code of ethics is being enforced at all times.

II. Governance

The policy-making powers are vested to the Board of Directors, which is presently chaired by Mr. Vicente P. Ligason, and concurrently the President/CEO of the corporation. The policies promulgated by the Board of Directors are translated into business operational objective and plans that are cascaded down to the corporate officers, manager and department head, or Staff. At present there are seven (7) employees and four (4) officers directly involved in financing and lending operations. The greatest assets of the company are its employees. They form the totality of the organization.

In addition, its functional organizational structure is lean and mean. Computerization and information technology is one backbone to its business operations. With the above in place, the strength, weaknesses, threats, and opportunities of the company are dealt with accordingly through best management practices.

III. External Environment: Opportunities and Threats

A. Societal Environment:

1. Economic:

In a nutshell, the Philippine economy fared relatively well in 2011. Despite economic slowdowns in the United States and economic stagnation in Japan, its two main export markets, exports orders continued to grow propped-up by exploding demand from emerging markets like China and stable markets like Germany.

The NSCB said that the Philippine's record economic growth was influenced mainly by the world economy recovering from the global financial crisis. This resulted in record growth rates of foreign trade, which in turn, contributed to an economic performance that well surpassed the government's target of 56% growth for 2010. In contrast, the economy grew at just 0.9 percent in 2009.

The strong growth last year may be attributed to a period of peaceful political transition from the former President Gloria Macapagal-Arroyo to the incumbent President Benigno Aquino III. In addition, millions of Filipinos working abroad yielded higher remittances all year round. Moreover, the conduct of the national elections in 2010 pumped extra money into the economy in the second quarter of the year.

Meanwhile, a report by the AFP news agency cited John Forbes an investment advisor with the local American Chamber of Commerce as saying that the promise of further political stability during Aquino's six-year term offered hope for a sustained period of strong growth.

The advisor cited Aquino's anti-corruption campaign, social welfare spending and multibillion-dollar infrastructure upgrade plans as other reasons to believe the Philippines could finally start to match its dynamic Asian neighbors.

2. Technological:

The Philippines is, relatively, a laggard in the ASEAN region in terms of technological integration. Among the countries in the Southeast Asian region (excluding East Timor and Myanmar), the Philippines lands on seventh place in terms of Internet penetration, gauged at around 19.7%. This percentage is conspicuously far from the figures recorded by Brunei, Singapore, and Malaysia, each enjoying a high Internet penetration rate of over 60%. Vietnam, a war-torn country just 30 years ago, is recovering from years of hostilities and occupies the fourth post with 30.8%, before Thailand with 26.3%.

Only 29% of the population is hooked up to the Internet. But interestingly, 72.5% of Filipinos who go online have access to Facebook. This percentage is larger than that of Brunei, Singapore, and Malaysia, which implies that the worlds most popular social networking site is a key driver of Internet penetration in the Philippines.

Country

Population

Internet Users

Penetration Facebook Users 80.7% 77.8% 204,780 2,478,720 9,998,440 1,281,740 8,669,680 21,531,640 34,850,920 53,240 255,660

Brunei

401,890

318,900 3,658,400

Singapore 4,740,737 Malaysia Vietnam Thailand 28,728,607 90,549,390 66,720,153

16,902,600 64.6% 27,855,711 30.8% 17,486,400 26.3%

Philippines 101,833,938 29,700,000 19.7% Indonesia Laos 245,613,043 34,850,920 14.2% 6,477,211 527,400 255,660 7.5% 1.7%

Cambodia 2,234,566

Based on the data presented, the Philippines is clearly not an innovator, but fortunately, not a laggard in the regional perspective. It is encouraging to note that the country does not have has the lowest Internet penetration in Southeast Asia - part of it is due to the influence of Facebook and the sociable nature of Filipinos. And, while the Philippines is not a laggard, it must face the bullet that a vast 71% of its entire population, which is the second largest in the region, is still under the laggard category in terms of Internet penetration. The slow rate of

Internet penetration and the small fraction of the populace in the Philippines that has access to the Internet simply provide us with a reality that adoption of technology in the Philippine society is largely dependent ones the socio-economic status.

3. Political-Legal:

The Philippines recent economic performance is marked by the success of fiscal consolidation. After the national governments budget deficit peaked at 5.3% of gross domestic product (GDP) in 2002, it launched a rigorous campaign to increase tax revenue and enhance public expenditure management. Benefiting from the full implementation of a revised valueadded tax with a higher rate and wider coverage, together with an aggressive focus on improving administration of the tax system and tight spending controls, tax revenue jumped 20% in 2006 equivalent to 1.3% of GDP and the largest increase in a decade.

This success has the potential for high pay-back. First, it confirms the willingness and capacity of the authorities to deliver on a key item of the reform agenda, and raises confidence that similar progress can be made in other areas. Second, it enhances market perceptions, with interest spreads declining sharply, international rating agencies upgrading their outlooks, and the peso strengthening against the greenback. Third, it opens fiscal and policy space for more intensive attention to other constraints on higher growth and faster poverty reduction, especially on spending for public infrastructure, health, and education. Fourth, it has already triggered larger financial support from official development partners, including the Asian Development Bank (ADB), and will contribute to a healthier environment for private investment.

Senior business executives identified the improving fiscal position of the national government, the continuing appreciation of the peso against the greenback, sustained GDP growth despite the recent financial crisis in the United States and the mega-earthquake in Japan, relatively low inflation rate, growing investor confidence, and low interest rates as the key positive developments in 2010.

The Philippine financial system is dependent on the publics trust. It is in this light that Bangko Sentral ng Pilipinas (BSP), as a regulatory body, exercises its authority to supervise and issue regulations that would strengthen and protect the integrity of the system.

Amendment and enactment of laws by Congress, some regulatory functions of the BSP over non-bank financial institutions or (NBFI) were transferred to the Securities and Exchange Commission (SEC). Among these laws is the Republic Act No. 5980 as amended by Republic Act No. 8556. It is otherwise known as the Financing Company Act of 1998, which is a law that is specifically promulgated for the purpose of regulating and promoting the business activities of financing companies. Financing companies hereinafter are called companies, are corporations, except banks, investment houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases,

chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property. Mainland Finance Corporation operated its business under RA No. 8556. Financing companies are categorized into two sub-sectors, namely those financing companies who are accredited to perform quasi-banking functions and those without quasibanking functions. The latter are directly regulated by the SEC. The former involves obtaining money from the public other than through deposits by issuing, endorsing, or accepting debt instruments under the borrowers account, which can be used for re-lending or purchase of receivables and other obligations.

Mainland Finance Corporation is a financing company without a quasi-banking accreditation. Therefore, allied laws like the Anti-Money Laundering Act apply to it.

4. Socio-Cultural:

The Filipinos are considered a fairly resilient and flexible people. A look at the countrys history of colonization, natural disasters, and even dramatic changes of governments can offer understanding as to why its 101 million-strong populous seem to be able to deflect any form of hardship.

With this resilience comes the creativity to make ends meet. With the complaints of overpriced of commodities come serious efforts to engage in double-jobs (sideline) buy-and-sell stints, pawnshop-hunting and lately, swapping (bartering) deals.

The saying, work hard, play harder is practiced in the Philippines seriously. Filipinos love fiestas or Friday-night partying, but amid these celebrations are days of hard work under the heat of a tropical sun.

With this hardworking streak in their veins comes a passion for adventure. Generally, Filipinos have an adventurous soul that always craves for new experiences. He finds fulfillment in working overseas, however far these postings may be. It is a well-accepted reality, too, that Filipinos go abroad to earn higher wages. Recent remittance records of overseas Filipino workers provide clear picture of how this adventurism is benefiting the economy.

The Filipino peoples love for enjoyment and partying may also contribute to a resilient economy. In fact, the current Philippine Government has been moving public holidays to Mondays or Fridays to give the country longer weekends. The people are not complaining. These weekends translate to vibrant domestic tourism and longer shopping sprees.

The Filipinos are fairly helpful people. They generally have a strong affinity for one another. The virtue of this affinity, colloquially referred to as bayanihan, is based on an age-old practice to help a neighbor move his house by literally carrying it over ones (and several others') shoulders. This is now often used to describe a feeling of brotherhood or solidarity among a close circle or group. For example, the spirit of bayanihan can be seen in the modern workplace when workers and staff share their lunch packs among themselves.

The overwhelming majority of Filipinos believe in luck and God. This strong faith in a supreme being or the magic of luck gives the Filipino people a very strong source of hope optimism.

B. Task Environment:

1. Threat of New Entrants:

The financing industry is fairly easy to enter. New entrants to the industry are incepted all the time (annually). Firstly, the relatively small capital outlay required to set-up a financing company is one attractive aspect of the industry. One can enter the industry with not much capital goods needed to start normal operation. Secondly, it is a fairly easy industry operationwise but, as do all industries, having the right connections is a very advantageous attribute.

2. Bargaining Power of Buyers:

In the language of a financing transaction, a client seeking for a loan is the buyer. Since there are several players (totaling 13,359 NBFIs), financing companies subject to interest rate positioning to in order to stay competitive. Financing companies must also convince their clients to stick with them for a second, a third, or more loans. If they are to survive in this very competitive industry, financing companies must learn to engage in strong trust-bonded long-term relationships with loyal or suki clients. This entails a unique active compromise with each and every customer (employed in a case-to-case basis).

3. Threat of Substitute Product or Service:

The financing industry is a sub-sector of the NBFI industry, which is, in turn, a subindustry of the financial macro landscape. Financing companies must compete with universal/commercial banks, thrift banks, rural/cooperative banks, and in-house financing companies (of large car manufacturers) in providing loans to a saturated credit market. All institutions within the financial macro landscape have their own niche in the Philippine credit market.

What the financing companies uniquely have over larger institutions such as universal/commercial banks or even thrift banks is that special, perhaps personalized, relationships can be established between a financing company and its client. This close relationship enables both to establish strong trust-bonded long-term relationships, which is very important in obtaining sustained revenue streams.

Rural and cooperative banks, meanwhile may also share similarities with financing companies in the way they perceive or treat their clients but they are, more often than not, inclined to loans geared for agricultural, societal, or real-estate development rather than to car loans (the lifeblood revenue stream for financing companies).

The biggest threat to financing companies are the in-house financing companies singlehandedly or jointly (with a banking institution) established by large car manufacturing

companies like Toyota. These types of financial institutions have all the advantages of financing companies and nearly none of their disadvantages. Not only do they address the concerns of a potential car buyer in a much more efficient or convenient way, but they can afford to grant their clients loans with much lower interest rates than most financing companies because of their deep pockets, owing to their ability to take advantage of concepts like economies-of-scale and size does matter.

4. Bargaining Power of Suppliers:

The car dealers are the suppliers of the financing companies. They are suppliers in the sense that they provide they refer them to potential clients. This is because the majority of the financing industries revenue streams come from transactions engaged with clients applying for a car loan (to buy second-hand cars) or for chattel mortgages.

Since there are several players, financing companies are also at the mercy of car dealers. Financing companies have to establish strong long-term relationships with a car dealer or a group of car dealers in order to obtain sustained or continuous revenue streams. Leading companies in the financing industry are characterized as having a large dynamic network of car dealers to allow room for possible deal withdrawals by either a client or a car dealer.

5. Rivalry of Competing Firms:

The financing industry is a very competitive industry. New entrants to the industry are incepted all the time (annually). This is due to the relatively ease of setting-up one as opposed to the potential financial returns. For one, it requires a relatively small capital outlay and, two, it is a fairly simple industry operation-wise.

Moreover, banks are already entering the industry at an accelerating rate, not just by the number of branches they establish but also on how far they are willing to emulate NBFI operations down to the last percentage of the interest rate. With deeper pockets, bank-led NBFIs can even make their lending rates the lowest there could be in the industry.

Furthermore, large car manufacturers are mobilizing resources and positioning tie-ups with banks to put-up their in-house financing companies. And, these companies are mostly with quasi-banking functions. This means that they can openly compete with any financing company in other segments of the financing market.

As a result of the dense and saturated nature of the Cebuano financing environment, pirating of clients and car dealers (generally those engaged in second-hand car industry which NBFIs partner with in helping to strike deals with prospective clients) is quite rampant and it is quite evident that an atmosphere of distrust is ever present among them as clearly demonstrated by the apparent lack of a comprehensive industry-wide compendium of numerical data. Information is rarely, if at all, shared openly among the industry players. This renders the ability to correct industry/systems-wide operational and functional problems as well as industry trends hard to detect at an early stage.

Recently, some banks that entered the NBFI sub-sector have over-extended themselves resulting in multiple foreclosures of vehicle units, and, thereby, resulting in the rapid increase of their bad debt levels as well as the . They resorted to giving as many loans as possible without undertaking proper credit investigation procedures so as to meet impossibly large loan approval quotas simply because their managers are still unfamiliar with the sub-sector and may not be aware of the level of uncertainty with regards to loans collections

C. Summary of External Factors: Last year and this year, the Philippines has a fairly conducive environment for financing companies to operate, relative to other countries in the Asia and Pacific Region and the world. It has survived the recent global financial crisis fairly unscathed and economically intact compared to more trade dependent countries like Japan, Taiwan, and Thailand and overly-levered ones like Portugal, Ireland, Greece, Spain, United Kingdom, and the United States. Moreover, the peaceful transition of power from iron lady former President Gloria Macapagal-Arroyo and the incumbent President Benigno Aquino III has further stabilized the outlook of investors and credit-rating agencies towards the short-term future prospects for the Philippines.

Despite several administration-linked corruption scandals and fiascos, thanks to the dynamic fiscal reforms initially instituted and executed during the administration of former President Gloria Macapagal-Arroyo and continued during the incumbent administration of President Benigno Aquino III, the investor confidence and credit-outlook for the Philippines has become fairly stable.

In addition, the resilient and affinitive nature of the Filipino people make the Philippines seem unsinkable despite these very hard times.

However, despite its many good indicators, the Philippines still has a lot to go before it can achieve a triple A (AAA) credit-rating. Technological integration and adoption is an area which most evidently needs more focus in terms of reforms. Corruption, which is still very rampant especially in the southern parts of the country (i.e. Mindanao), needs to be addressed more seriously lest it derails or disrupts any progress made by the two recent administration politically, legally, economically, and socio-culturally.

IV. Internal Environment: Strengths and Weaknesses

A. Business Structure:

The organizational structure of Mainland Finance Corporation has adopted the functional, centralized type. Below is the functional organizational chart:

Board of Directors Executive Committee Internal Auditor President and CEO Treasurer VicePresident Manager Cash Dept. Loans Dept. Acctg. Dept. Credit Dept. Collctn. Dept. Secretary

The Board of Directors opted for a functional-type of organizational structure that was mean and lean as the appropriate structure for the companys operations.

Mainland Finance Corporation operates its business along FIVE functional areas, namely: 1. Cash Department treasury function and management of cash 2. Loans Department promotion/profiling of clients and processing 3. Accounting Department book of accounts management and administrative function 4. Credit Department credit and property appraisals 5. Collection Department receivables management and monitoring

It must be noted that being a lean organization, the President and CEO, manager and other officers spearheads design and implementation of its the marketing program in close coordination with its five departments.

The distinct advantages of the functional type of organization are as follows: 1. Enhances the flow of rightful information and feedback mechanism for business coordination to and from general manager to department and board levels 2. Being mean is cost effective while maximizing manpower capacities and productivity; and 3. Being lean allows optimum management control and supervision

The barriers to the functional-type of organization are as follows: 1. Decision-making usually is centralized to apical management that can slow down response to business environment changes; 2. Robotic rather than strategic coordination may occur among employees, which may limit the development of their initiatives; and 3. May hinder or limit productive geographical expansion, which require close business monitoring and the decentralization of the decision-making function

B. Business Culture:

The culture of Mainland Finance Corporation descends from its stockholders or incorporators being of a closely-knit circle of relatives and friends that avows mutual respect. The culture that cradled the business success of Mainland Finance Corporation in the past seven years (20012007) revolves around a solid commitment to conduct business with strong ethical responsibility and respect for the law, based on the While seven years of business existence is

still considered an infant corporate stage, the company culture is gradually being built along the solid moral-value foundations of honesty, respect, and responsibility.

C. Business Resources:

1. Marketing:

Advertising and promotion is one vehicle used by companies to introduce their product to the potential market or serve as reminder to their current clients that their product still exists. A product, no matter how superior, may never be able to take-off in the market if customers are not made aware. The common media for advertising are: television, radio, and print media. The frequency of when these media are accessed would also vary depending on the socio-economic class of the target consumer.

Financing companies advertise or promote their products through lip service of sales/marketing personnel of enterprises of varied industries who act as recommending agents. In turn, when transactions are concluded, these marketing personnel earn commission from financing companies. In like manner, financing companies sometimes make product presentations to organizations or associations to create awareness. Print media as a medium for advertising or promotion are usually in the form of company fliers.

Mainland Finance Corporation applies the word-of-mouth type of marketing most of the time. But occasionally, they publish ads in local newspapers and even pay for airtime at

96.3Wrock, a very popular FM radio station, to broadcast a fairly short audio clip to advertise the companys services and location when business is lean, especially during the months of July, August, and September.

2. Finance:

Ownership of Mainland Finance Corporation is in the form of common shares of stocks. There are 19 stockholders on record as of May 15, 2011. The stockholder-personae are described as close-knit relatives and friends. The founder of the business and controlling stockholder is Mr. Vicente P. Ligason, who is a respected businessman among his peers in the business community and has a plethora of productive experiences in financing management and operations.

3. Research and Development:

Mainland Finance Corporation does not have any budget, and thereby does not undertake research and development for its services.

4. Operations and Logistics:

The main operations and logistics of the company is centrally commenced at its main office.

Credit investigation and loan collection is undertaken by two (2) of the companys employees on two (2) separate company-owned motorbikes. In addition, the company has allocated a budget for a so called car plan for both its president and its manager. The car plan is a buy-transfer scheme, whereby the company buys a car for each and, after five years, transfers the ownership to the respective recipient.

5. Human Resource Management (HRM):

The company does not have a department dedicated purely for concerns that are supposed to be directed to the Human Resource Management (HRM) department as it appears unnecessary and impracticable given the small size of its workforce.

All HRM concerns are initially directed straight to the general manager of the company, who then relays it to the Board of Directors. Any rectifying or disciplinary action regarding any employee would finally and squarely rest upon the agreed decision among the stockholders that constitute the majority of the Board.

6. Information Systems: It is quite evident that an atmosphere of distrust is ever present among financing companies. This is clearly demonstrated by the apparent lack of a comprehensive industry-wide

compendium of basic numerical data. Information is rarely, if at all, shared openly among the industry players. This renders the ability to correct industry/systems-wide operational and functional problems as well as industry trends hard to detect at an early stage.

D. Summary of Internal Factors:

Mainland Finance Corporation has adopted the function and centralized-type organizational structure. Its corporate culture revolves around a solid commitment to conduct business with strong ethical responsibility and respect for the law, built on the solid moral-value foundations of honesty, respect, and responsibility.

The company is largely internally financed through regular investments (via cash injections) by its nineteen (19) stockholders). The companys chairman/CEO/president, Mr. Vicente P. Ligason, is by far the largest and controlling shareholder.

While the company has some limited advertising/promotion efforts, with word-ofmouth acting as its primary medium, it functions with virtually no research and development undertakings involved whatsoever.

Moreover, the HRM function is initially handled by general manager of the company, who then relays it to the Board of Directors in cases involving disciplinary action.

The companys geographic presence is centrally located in one fairly large office space via a leasing agreement. Two (2) motorbikes are the companys transport compliment for its credit investigators/collectors while two (2) cars are the companys transport compliment for both its general manager and president.

It is disconcerting, however, to discover that industry-wide information is not readily available and, in fact, very hard to come-by for the financing industry because of the overwhelming atmosphere of distrust among the industry players.

V. Analysis of Strategic Factors (SWOT)

A. Situational Analysis:

1. Strengths:

Strong management team Multi-skilled and technically high-skilled staff Financially stable, adequate capital

 Competitive product service offer Fast, personalized service Established niche of valued customers Established niche of loyal automotive dealers Good image and business reputation Speed in appropriate documentation processing Sustained net income growth with high returns

2. Weakness:

Constrained leeway for service diversification Allocation for R&D is nil High borrowing cost (high interest rates) as opposed to banks Minimal efforts towards an effective advertising/marketing strategy Limited access to industry associations

3. Opportunities:

The financing industry that are located in the Province of Cebu have a net market demand size valued at P201M in 2010 and growing at a rate of 9.37% annually Positive growth of the automotive industry at 2.6% annually where 46% of newly registered in 2009 and 2010 belong to the used or second-hand category.

 Cebu Province is an unquestioned economic hub of the Visayas and Mindanao areas. And, it has a relatively large industrial sector. Provincial GDP growing at an average of 5 6% in the five years ending December 31, 2009. Cebu Province is home to 3.7 million people and 2.4 million of them reside within the urban area of Metro Cebu. Cebu Province, especially Metro Cebu, is in the midst of a housing boom with bullish demand expected to last until 2014. Average revenue growth of financing companies is at 13.5% Downtrend of the countrys inflation rate at controlled single-digits 99.6% of enterprises in Philippines are small and medium-sized enterprises (SMEs) while only 0.4% of them are large enterprises. The overwhelming majority of Mainland Finance Corporations and the industrys (as a whole) clientele are engaged in businesses considered to be SMEs. Nationwide demand for fresh credit is growing at 17.5% annually. Rapid urbanization in Cebu Province (towards the economic heartland of Metro Cebu) is changing lifestyles of the migrants and, thereby, boosting sales of urban essentials like private transport vehicles, smartphones, and computers (desktops, laptops, and tablets). Implementation of Bio-fuels Act can spur the growth of related industries in the corn and sugar-cane production and processing industries, thereby, increasing propensity for lending and financing activities with said industries.

4. Threats:

 Entry of bank subsidiaries in the financing market, registered as financing companies (with quasi-banking functions), are thereto awash with cash at the least cost. Lifting capital ceiling of lending investors Real estate developers and large car manufacturers are mobilizing resources and positioning tie-ups with banks to put-up their in-house financing companies. And, these companies are mostly with quasi-banking functions. Aside from captured market, they can openly compete with any financing company in other segments of the financing market. Reported incidence of or risk of carnaps Reported connivance of some LTO personnel in issuing fake vehicle registrations

B. Review of Mission and Objectives:

Mission

The manner, in which the current mission statement of the company was written, in a single sentence, was basically an operational or objective statement and not a mission statement. Likewise, it did not pass the nine (9) basic components that were used as a practical framework for evaluating mission statements nor did it answer the pivotal question: What is our business?

In view, the present mission statement must be reformulated in a manner that it can both address the evaluation components and clearly reflect the reason for being of the Mainland Finance Corporation.

Recommended Revised Mission Statement

We are a financing and lending company. We provide the highest value for quality services in lease financing for used or second-hand vehicles, home improvement loans, and direct lending services for business start-ups. Our satisfied customers are a mix of entrepreneurs, taxi and public-utility vehicle operators, homeowners, and enterprising individuals living in the Province of Cebu. Our price offerings for financing and lending packages are competitive in the markets we serve, and are upheld consistently in line with the standard lending practices in the Philippines. We ensure our shareholders of continuous quality growth, attractive return on equity and integrity in our reporting. We commit an enduring value for our employees to have a great place to work, have opportunity for professional growth, and rewarded with respect and recognition (when deserving). With the right mix of human resources and aid of proven technologies, we work as a team and win together. We build a sense of community within the organization.

Objective

Mainland Finance Corporation did not have an adequate written corporate objective that was considered specific, measurable, attainable, reasonable, and time bound in 2011. Company

operations are focused mainly on a weekly and monthly short-term planning and objectivesetting. For example:

1. To increase the companys annual revenue from P14 million to P16 million by the end of 2011; 2. To increase the authorized capital stock and paid-up of the company from P10 million to P20 million; 3. To reduce the lending rates to be competitive from 24% to 20% per annum for cars with models not below 5 years old; 4. To create a budget of P60,000.00 a year for three years for personnel training and development; 5. To develop a tie-up with used or second-hand car dealers; 6. To reduce the borrowing rates from 14% to 12% per annum starting January 01, 2012

In view, there is a need to formulate a proposed adequate written corporate objective to provide direction, purpose, synergy, and allocation of resources.

VI. Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives:

Mainland Finance Corporation may choose from the following strategies: 1. Product Development Strategy

2. 3. 4. 5. 6. 7. 8. 9.

Market Penetration Strategy Concentric Diversification Strategy Joint Venture Strategy Forward Integration Strategy Backward Integration Strategy Market Development Strategy Conglomerate Diversification Strategy Horizontal Diversification Strategy

B. Recommended Strategies:

From these strategies, the following are recommended for Mainland Finance Corporation to achieve the companys objectives for the coming year:

Product Development Strategy A product development strategy seeks to increase sales by improving or modifying present products or services or developing new ones. One avenue Mainland Finance Corporation can implement product development strategy is to constantly improve the present product features of its leasing or lending services. Another would be on improving present portfolio products that are more aggressive and are more appropriate for the Philippine auto market, particularly involving sales of used/secondhand vehicles (which comprise 46% of all new vehicle registrations in 2009 and 2010, according to the Land Transportation Office) via the companys extension of credit instruments to

prospective buyers. Likewise, the company can improve present portfolio products by being more responsive to the trends of the booming Philippine housing market and its related service needs such as house renovations and expansions.

Market Penetration Strategy Market penetration refers to a strategy of seeking increased market share for present products or services in present markets through greater marketing efforts. These are the market penetration strategies that Mainland Finance Corporation can implement: i. Employ aggressive presence with the Cebu Used-car Dealers Association, numerous public-utility vehicle and taxi operators, Cebus various homeowners associations, and with entrepreneurs or enterprises that engage business in the auto industry. ii. iii. Use print and broadcast media to advertise/promote the companys services. Organizing marketing programs to increase the propensity for interaction or contact with potential customers in the credit markets through programs such as the Crediteducation Program for Entrepreneurs, which enables more interaction or contact with customers looking into buying cars and/or houses. iv. Establish a marketing mechanism with a critical mass on a geographical reach that is province-wide. In order to mobilize this, a pool of marketing agents will be hired and shall be compensated on a commission basis.

VII. Implementation:

Specific Steps Expand or establish branches in strategic locations in the Province of Cebu or in other provinces located in Region VII Allocate an annual budget of P100K for advertising and promotions, subject to evaluation with regard to its impact or effectiveness Organize a province-wide pool of individuals who shall be tapped as marketing agents and shall be paid on a commission basis Product portfolio improvement for the auto and housing industries Organize the Crediteducation Program for Entrepreneurs as a marketing tool Position a well-balanced loan portfolio Corporate positioning on

Department/Persons Responsible CEO/Manager

Time Frame Two branches operational by the 4th Quarter of 2012

Accounting Department

Operational by the 1st Quarter of 2012

Loans Department

Operational by the 1st Quarter of 2012

All Department Staff

Operational by the 3rd Quarter of 2012

All Department Staff

Operational by the 3rd Quarter of 2012

CEO/Manager CEO/Manager/All Department

Operational by the 1st Quarter of 2012 Operational by the 1st

lending rates to achieve greater competitiveness Creation of a digitalized of credit information data base as a means to facilitate market R&D on a regular basis Liquefy non-performing assets Employ a continuous improvement program for employees VIII. Evaluation and Control

Staff All Department Staff

Quarter of 2012 Operational by the 3rd Quarter of 2012 and onwards

Manager/Credit Department Manager

Annually Annually

The following are the recommended strategies:

Product Development Strategy Evaluation: Product development strategy will be implemented by Mainland Finance Corporation by improving present portfolio products which are more aggressive and appropriate for the auto industry, particularly involving sales of used/second-hand vehicles (which comprise 46% of all new vehicle registrations in 2009 and 2010, according to the Land Transportation Office) via the companys extension of credit instruments to prospective buyers. Likewise, the company can improve present portfolio products by being more responsive to the trends of

the booming Philippine housing market and its related service needs such as house renovations and expansions. Market Penetration Strategy: Market penetration strategy will be implemented by Mainland Finance Corporation by employing aggressive presence with the Cebu Used-car Dealers Association, numerous public-utility vehicle and taxi operators, Cebus various homeowners associations, and with entrepreneurs or enterprises that engage business in the auto industry. In addition, budget would be allocated for advertising/promotion in print and broadcast media about the companys services. Furthermore, the company would organize marketing programs to increase the propensity for interaction or contact with potential customers in the credit markets through programs such as the Credit-education Program for Entrepreneurs, which enables more interaction or contact with customers looking into buying cars and/or houses. Lastly, establish a marketing mechanism with a critical mass on a geographical reach that is province-wide. In order to mobilize this, a pool of marketing agents will be hired and shall be compensated on a commission basis.