Market Expansion and Productivity Growth

Question: Discuss about a Case Study on Market Expansion and Productivity Growth? Answer: Introduction Entering any trade section of a market takes a gigantic amount of effective and efficient efforts from the management of the firm and the new boutique firm is not an exception (Baldwin and Yan 2012). The business plan will analyse all the market entry methods and select the best suited one for the boutique. Moreover, the study will also showcase the entire fiscal position of the firm after in- depth scrutiny of the market and its demands. Estimation will also be provided regarding various sections of finance of the boutique that will include profit and loss statement, projected cash flow, sales estimation and balance sheet. Market Entry Strategy The boutique as planned will carry out its trade operations in city centre of London; hence, there is a possibility of a huge rush in the counters once the boutique offers an eye catching discount on its products as a opening ceremony attraction. The four market entries method within which the boutique can choose from are stated below: Low cost leadership Differentiation Strategy (Lymbersky 2009) Cost focus Differentiation focus (Marketing Donut 2016) Figure 1: Market entry strategies (Source: Byun and Ahn 2009) The boutique will use an amalgamated strategy of low cost leadership and differentiation strategy which will enable them to attract massive amount of consumers. Moreover, the boutique will use price penetration strategy as their pricing strategy, where the price will be lowered initially and will increase with rise in demands (Hoernig 2014). Market Growth Strategy According to Chang and Chiu (2009), achieving success and growing smoothly within any business domain is one of the most challenging tasks that the management has to face during the initial set up of the company. The same is also applicable for the boutique and hence, the adopting and implementing the strategic growth of the Ansoff matrix will be executed by the boutique. Figure 2: Ansoff Matrix (Source: Businesscasestudies.co.uk 2016) As already discussed the will adopt the price penetration strategy, which will enable them to achieve the best possible in terms of attracted customers (Chakrabarti, Vidal and Mitchell 2011). Moreover, price penetration is one of the most popular pricing strategies within the clothing and retail industry as there are uncountable numbers of competitors operating within the market. Operational Issues The actual fabrication and development of a firms services and products are best highlighted from its operational and logistical divisions (Essling 2011). All the operational sections and its role in the business process of the boutique are stated below: Location The Boutique will be located in the City Centre of London, and being one of the busiest market places of the country, the place will throw in massive business opportunity in the path of the firm. Employees The total numbers of employees in the boutique will 4, which will consist of 3 staff members and 1 supervisor. However, apart from these 4 employees, the boutique will require to either employing or searching manpower to work as freelancers for other requirements of business such as production, designing and IT services. Production The production department of the boutique will disguised play the most pivotal role among the entire business process, as the quality of garments will depend on the skills of the employed workers within this division of the firm (Gunay 2009). Therefore, the boutique will require to employee at least 4 to 5 capable workers to bring out the best and differentiated products within the market and to its customers. Inventory Some nominal and basic inventory will be required within the boutique which will include one computer/ laptop, posters, stock of garments, chairs, and drinking waiter facility. Design Unit This section will employ only 1 employee, who will have the sole responsibility to provide the production department with unique and differentiated designs of garments. Finance Unit 1 skilled and experienced financial supervisor will be employed and as it is a small business for the time being, the concerned person will not face any sort of excessive work pressure problems. Financial Projections The reasonable estimation and financial projection of the Boutique has been provided below, which is based on the first year of operation. The start up assets needed for the boutique and the Sources of funding the same has been presented below. Estimated Budget for opening the retail showroom Amount Logo and creation of name $1,000 Stationery $1,500 Telephone an utilities $2,000 packaging $2,500 Business Supplies $600 Real Estate Attorney and CPA $2,500 Gran Opening Event $3,000 Signage $1,500 POS System $3,500 Bank Card machine and supplies $400 Build- out $15,000 Business Inventory Insurance $2,500 Travel- market buying trips $2,250 Total Start up expense $38,250 Start - up assets $18,200 Start - up Inventory $80,000 Other current assets $0 Long- term assets $15,000 Total assets $1,13,200 Total Requirements $1,51,450 Table 1: Start up assets (Source: Created by author) Sources of Funds Owners' and other investments $71,000 Bank loans $80,450 Other loans $ - Total Source of Funds $1,51,450 Use of Funds Buildings/real estate $ - Leasehold improvements $20,000 Capital equipment $35,000 Location/administration expenses $5,800 Opening inventory $9,000 Advertising/promotional expenses $4,000 Other expenses $1,200 Contingency fund $4,000 Working capital $72,450 Total Use of Funds $1,51,450 Table 1: Sources of Funds (Source: Created by author) Pricing Projection The pricing of the garments will be underpinned in the tag at its real price but a attracting and mindboggling discount will be provided as the special occasion of the opening ceremony of the boutique. The sales estimation of the boutique is presented below: Description January February March April May June July August September October November December Total Sales $51,414 $56,555 $62,211 $68,432 $75,275 $82,803 $91,083 $1,00,191 $1,10,210 $1,21,232 $1,33,355 $1,46,690 $10,99,452 Table 2: Sales Estimation (Source: Created by author) Graph 1: Sales Estimation (Source: Created by author) The above table and graph shows that the boutique will not be able to sell huge amount of garments in the first month despite of providing a huge discount but will successful attract consumers and hence the sale will go up by 10 % each month (Longbrake 2013). However, another noticeable element is that the boutique due to its price penetration will be able to start from a standard amount of sales from the very beginning month of operation. Projected Income / PF Statement The projected profit and loss statement of the boutique for the first year of its operation is presented below: Description January February March April May June July August September October November December Total Sales $51,414 $56,555 $62,211 $68,432 $75,275 $82,803 $91,083 $1,00,191 $1,10,210 $1,21,232 $1,33,355 $1,46,690 $10,99,452 COGS $52,477 $52,477 $52,477 $52,477 $52,477 $52,477 $52,477 $52,477 $52,477 $52,477 $52,477 $52,477 $6,29,724 Gross Margin $1,063 ($4,078) $9,734 $15,955 $22,798 $30,326 $38,606 $47,714 $57,733 $68,755 $80,878 $94,213 $4,63,697 Gross Margin % $2 ($8) $19 $30 $43 $58 $74 $91 $110 $131 $154 $180 $74 Expense Accounting / Legal $2,154 $1,157 $1,059 $1,045 $456 $889 $778 $889 $1,114 $1,023 $658 $778 $75,000 Bad Debts $2,278 $2,245 $2,047 $2,094 $3,150 $1,547 $1,568 $3,883 $2,169 $2,017 $1,256 $1,457 $44,112 Shrinkage $10,000 $15,000 $22,000 $5,000 $7,000 $11,000 $8,000 $4,000 $3,500 $2,500 $1,200 $800 $0 Credit Card Fees $1,254 $2,478 $1,382 $1,587 $1,947 $1,568 $1,489 $1,948 $1,457 $1,647 $2,114 $1,697 $7,356 Insurance $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $17,460 Miscellaneous $3,478 $3,120 $3,654 $3,987 $3,654 $4,103 $4,102 $3,602 $3,687 $3,469 $3,002 $4,254 $12,342 Payroll Taxes $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $20,928 Permits and Licenses $1,047 $156 $546 $567 $423 $1,078 $706 $564 $445 $598 $778 $448 $3,25,477 Rent $1,455 $1,455 $1,455 $1,455 $1,455 $1,455 $1,455 $1,455 $1,455 $1,455 $1,455 $1,455 $17,460 Salaries $1,028 $1,029 $1,029 $1,029 $1,029 $1,029 $1,029 $1,028 $1,028 $1,028 $1,028 $1,028 $12,342 Wages $1,744 $1,744 $1,744 $1,744 $1,744 $1,744 $1,744 $1,744 $1,744 $1,744 $1,744 $1,744 $20,928 Total Expenses $30,688 $34,634 $41,166 $24,758 $27,108 $30,663 $27,121 $25,363 $22,849 $21,731 $19,485 $19,911 $5,53,405 Net Profit ($29,625) ($38,712) ($31,432) ($8,803) ($4,310) ($337) $11,485 $22,351 $34,884 $47,024 $61,393 $74,302 $10,31,810 Net Profit Sales $0 $0 $0 $0 $0 $0 $13 $22 $32 $39 $46 $51 $20,19,508 Table 3: Profit and Loss estimation (Source: Created by author) Graph 2: Profit and Loss estimation (Source: Created by author) The above table and graph clearly highlights the fact that the gross margin of the boutique in the month of February will be a loss of $ 4,078, which is due to removal of the discounts from the garments that was offered in the month of January. However, the gross margin in March will turn out to be around $9,734 that will be due to the huge amount of attracted customer base. Meanwhile, the net profit of the boutique has been forecast as below: Month Net Profit January ($29,625) February ($38,712) March ($31,432) April ($8,803) May ($4,310) June ($337) July $11,485 August $22,351 September $34,884 October $47,024 November $61,393 December $74,302 Net Profit Forecast (Source: Created by author) The forecast quiet reasonably highlights that the boutique will not be able to earn any sort of profit from its operating in the first 6 months, which is until June and will have the lowest net loss on June of $337. The turnaround point of the boutique can be said to be the month of July on which the firm will achieve its first profit of $11,485. Projected Cash Flow Statement The cash flow of the boutique for the first year of its operation within the market has been highlighted below along with detailed analysis of the same. Pro Forma Cash Flow January February March April May June July August September October November December Cash Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Cash from Operations $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Cash Sales $51,414 $56,555 $62,211 $68,432 $75,275 $82,803 $91,083 $1,00,191 $1,10,210 $1,21,232 $1,33,355 $1,46,690 Cash from Receivables $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cash from Operations $51,414 $56,555 $62,211 $68,432 $75,275 $82,803 $91,083 $1,00,191 $1,10,210 $1,21,232 $1,33,355 $1,46,690 Additional Cash Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Sales Tax $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Investment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cash Received $51,414 $56,555 $62,211 $68,432 $75,275 $82,803 $91,083 $1,00,191 $1,10,210 $1,21,232 $1,33,355 $1,46,690 Expenditures Cash Spent $57,584 $57,584 $57,584 $57,584 $69,547 $69,547 $69,547 $69,547 $75,489 $75,489 $75,489 $75,489 Bills Paid $784 $831 $839 $848 $856 $865 $873 $882 $891 $900 $909 $918 Subtotal Spent on Operations $56,800 $56,753 $56,745 $56,736 $68,691 $68,682 $68,674 $68,665 $74,598 $74,589 $74,580 $74,571 Additional Cash Spent Sales Tax (10%) $5,680 $5,675 $5,674 $5,674 $6,869 $6,868 $6,867 $6,866 $7,460 $7,459 $7,458 $7,457 Subtotal Expenditures $62,480 $62,428 $62,419 $62,410 $75,560 $75,550 $75,541 $75,531 $82,058 $82,048 $82,038 $82,028 Net Cash Flow ($11,066) ($5,873) ($208) $6,022 ($285) $7,252 $15,542 $24,660 $28,153 $39,184 $51,317 $64,662 Cash Balance ($11,066) ($16,939) ($17,147) ($11,125) ($11,409) ($4,157) $11,385 $36,045 $64,198 $1,03,381 $1,54,698 $2,19,360 Table 4: Cash Flow Statement (Source: Created by author) Graph 3: Net Cash flow and Cash balance comparison (Source: Created by author) The cash flow statement clearly shows that the boutique will face scarcity of cash in the first 6 months of its operations as the business will run in loss. The situation will hit a turnaround element in the month of July as in that month the net cash flow and cash balance are estimated at $15,542 and $11,385 respectively. In the month of December, both the net cash flow and cash balance will go up to an estimated amount of $64,662 and $2, 19,360 respectively. Moving on to the comparison of net cash flow and cash balance, the fact can be easily derive from the graph that the cash balance of the boutique will require more time to turn into a positive amount than the net cash flow (Padoan and Mariani 2010). The first continuous positive net cash flow of the firm will be $7252 and first continuous positive cash balance will be $11,385. Projected Balance Sheet As opined by Roenfeldt and Osteryoung (2012), Balance Sheet of any business is the sole component that has the actual ability to let the stakeholders realise the exact fiscal position of the business at a certain point of time and hence, analysing the Projected Balance Sheet of the boutique is immensely pivotal, which is discussed below: Assets January February March April May June July August September October November December Total Current Assets Cash ($11,066) ($16,939) ($17,147) ($11,125) ($11,409) ($4,157) $11,385 $36,045 $64,198 $1,03,381 $1,54,698 $2,19,360 $5,17,224 Accounts Receivable $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,084 $2,084 $2,084 $2,084 $25,000 Inventory $1,166 $1,166 $1,166 $1,166 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $14,000 Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Current Assets ($7,817) ($13,690) ($13,898) ($7,876) ($8,159) ($907) $14,635 $39,295 $67,449 $1,06,632 $1,57,949 $2,22,611 $5,56,224 Long Term Assets Long Term Assets $12,041 $12,041 $12,041 $12,041 $12,042 $12,042 $12,042 $12,042 $12,042 $12,042 $12,042 $12,042 $1,44,500 Accumulated Depreciation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Long Term Assets $22,375 $22,375 $22,375 $22,375 $22,375 $22,375 $22,375 $22,375 $22,375 $22,375 $22,375 $22,375 $2,68,500 Total Assets $14,558 $8,685 $8,477 $14,499 $14,216 $21,468 $37,010 $61,670 $89,824 $1,29,007 $1,80,324 $2,44,986 $8,24,724 Liabilities and Capital Current Liabilities Accounts Payable $2,416 $2,416 $2,416 $2,416 $2,417 $2,417 $2,417 $2,417 $2,417 $2,417 $2,417 $2,417 $29,000 Current Borrowing $125 $125 $125 $125 $125 $125 $125 $125 $125 $125 $125 $125 $1,500 Other Current Liabilities $2,375 $2,375 $2,375 $2,375 $2,375 $2,375 $2,375 $2,375 $2,375 $2,375 $2,375 $2,375 $28,500 Subtotal Current Liabilities $4,791 $4,791 $4,791 $4,791 $4,792 $4,792 $4,792 $4,792 $4,792 $4,792 $4,792 $4,792 $59,000 Long Term Liabilities $15,750 $15,750 $15,750 $15,750 $15,750 $15,750 $15,750 $15,750 $15,750 $15,750 $15,750 $15,750 $1,89,000 Total Liabilities $20,541 $20,541 $20,541 $20,541 $20,542 $20,542 $20,542 $20,542 $20,542 $20,542 $20,542 $20,542 $2,77,000 Paid In / Invested Capital $18,583 $18,583 $18,583 $18,583 $18,584 $18,584 $18,584 $18,584 $18,583 $18,583 $18,583 $18,583 $2,23,000 Total Capital $18,583 $18,583 $18,583 $18,583 $18,583 $18,583 $18,583 $18,583 $18,584 $18,584 $18,584 $18,584 $2,23,000 Total Liabilities and Capital $39,124 $39,124 $39,124 $39,124 $39,125 $39,125 $39,125 $39,125 $39,126 $39,126 $39,126 $39,126 $5,00,000 Table 5: Balance Sheet (Source: Created by author) The balance sheet clearly highlights the fact that the boutique will have to face a tough time until the month of June as the cash is estimated at a negative balance of -$4,175 and total current assets for the same month is estimated at -$907. Therefore, it can be quiet reasonably argued that the boutique needs to take special care of its fianc section until it have started achieving a positive cash flow (Velez-Pareja 2012). Identification of Finances and Resources The three major resources of the boutique are identified and elaborated below, which will enable the store to excel in its business operation with each passing month. Finance Resource The most imperative element needed is financial funding that will take care of all the start up expense of the boutique and hence, a loan of $80,450 will be taken from the bank (Markman and Phan 2011). Human Resource The employees selected for the boutique will play a massive role behind the success ratio of the firm. Hence, it is recommended that a capable employee is designated as the HR. Physical Resource The boutique will be located at the City centre of London and the apparels will consists of well renowned designers. Moreover, a nice interior along with sitting arrangements will be enough for the time being. Risk and Mitigation Three mitigation and risk have been identified by the boutique, which is elaborated below: What if the apparels and garments gets rejected by customers Rejection of the differentiated garments of the boutique is a major risk, which can be circumvented by advertising and dividing the section of garments as per their categories, which will ease up the selection process for the customers (Sette 2015). What if the store gets congested due to excessive users in time of sale and discount The only actual remedy is to enlarge the floor space, which will be a unnecessary waste if funds as the rush is predicted only in the discount periods (Pehrsson 2011). Therefore, the boutique needs to employ one more personnel, who will have the sole responsibility to get rid of the non- buying customers in a polite manner. Risk if business goes dead Threat of new entrants within the market is one of the most common and experienced threats or risks. This can become even worse if the idea and strategy of the boutique is leaked within the market and hence, the only remedy is assuring confidentiality of the concerned data documents, which should not be compromised under any circumstance. Reference List Baldwin, J. and Yan, B. 2012. Market Expansion and Productivity Growth: Do New Domestic Markets Matter as Much as New International Markets?. Journal of Economics Management Strategy, 21(2), pp.469-491. Businesscasestudies.co.uk, 2016. Ansoff's growth strategies - Growing a business by developing products and markets - Beiersdorf | Beiersdorf case studies and information | Business Case Studies. [online] Available at: https://businesscasestudies.co.uk/beiersdorf/growing-a-business-by-developing-products-and-markets/ansoffs-growth-strategies.html#axzz402nXOZmT [Accessed 13 Feb. 2016]. 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