NMO S4 SPRINT ONE | BUSINESS CASE SCENARIO - 03
Submission BCS
A Financial plan with allocated budget of 50 crore for international expansion in UAE, Qatar, Bahrain & Kuwait.
Submission Date & Time: 2021-11-21 03:26:19
Event Name: NMO S4 Sprint One - IIM Visakhapatnam
Solution Submitted By: Aaron Fernandes
Assignment Taken
Business Case Scenario - 03 Finance Department - Develop and propose a financial plan with allocated budget for International expansion.Case Understanding
The case talks about Ramalingam Foods, a successful fast-food restaurant has set up in Bombay. They are known for their authentic fresh South Indian bakes and filtered coffees. They even managed to survive during the emergency by coming up with innovative ideas such as Dosa-Idli batter. Ramalingam foods decided they want to expand their business. However, due to lack of foreign expansion experience hired a consultancy firm to suggest the road map and implementation of International Business Expansion with the limited budget that they had allotted for expansion. Having a limited budget, it can only go ahead with one of the regions to expand. Choosing which region, it should be set up in wouldn’t be an easy task. Every region has its own pros and cons. Being an Indian item, we cannot judge accurately how the product will fair in foreign regions. Some countries also might have lots of paperwork that's necessary for entering the market. This could result in a wastage of time and resources. There might be chances for unexpected costs that might eat up a portion of the budget. A certain portion also needs to be allotted for such things. Even after choosing a region, the standard of living, costs, salaries, and wages will vary for different countries. Also, various registration fees, tax regulations & exchange rates need to be looked at before choosing a region and a country to target. Also, allotting enough money to the respective departments is also important. Every department would like to have an even larger chunk than what they might be allotted. Having a limited budget taking care of this becomes important. Estimating the pricing of the goods in the new country based on its existing economic conditions. Whether the market is elastic or not would be a major factor while deciding the target markets.BCS Solution Summary
After being given the task to choose the ideal region for expanding our business. We decided to go ahead mainly with UAE, Qatar, Kuwait & Bahrain and would look to expand to Saudi Arabia and Oman in the coming future. The reason is these countries are known for being the best places to do business by WHO due to their favorable corporate tax rates, funding availability, a skilled workforce, flexible immigration policies, advanced infrastructure, and a low crime rate. It will get itself registered in these countries initially and export goods from its Indian factories to here. Transportation between these countries can be achieved by road and would be quite cheap as compared to other regions. A financial plan to allocate 50 crores was made keeping in mind the various needs of each department. Finance department got the largest portion as it is responsible for paying salaries, rent of sub-offices and head offices and also responsible for paying off the transportation costs. Leaving this aside Marketing & sales department got a good chunk of the budget after the finance team as they will have to create a brand in an unknown market. Advertisement and positioning of the product would require a good amount of funds. This can be lowered as time passes. IT also got a good chunk as the company needs to keep to date with the technology and investment in IT will pay dividends in the future. HR and general management got the least amount among other departments as they mainly played a secondary role for the company. HR costs mainly were incentives and the cost of hiring. After all the departments were allotted sufficient funds for their smooth functioning an amount of around 6 crores remaining from the budget was kept aside for Unforeseen circumstances that might arise in the future.Solution
Many foreign corporations have operations in Dubai, and it is a crucial location for them. The World Bank has classified Dubai as the easiest place to do business in the world. With a robust financial system and a secure political climate, the UAE welcomes people and corporations interested in doing business in Dubai. Dubai is a fantastic place to establish or extend your business around the world. Many multinational firms have chosen Dubai as their new headquarters due to advantages such as favorable corporate tax rates, funding availability, a skilled workforce, flexible immigration policies, advanced infrastructure, and a low crime rate. Due to which we have decided to go ahead with the middle east region as they also have a good portion of the Indian population living there. We would mostly focus on UAE and the other neighboring countries like Qatar, Kuwait, and Bahrain.
Coming up with a budget that optimizes all the departments is really important especially when the budget is of a limited nature. According to management principles with respect to financial management, the budget needs to be realistic and the least favorable scenarios need to be taken into consideration.
Registering a business in the middle east is also a quick and convenient one. You can register your company for most of the middle east region at once. You would have to register with the Gulf Co-operation Council that would cost you around 7 lacs in Indian rupees. Registering won’t be that much of a load on the limited budget.
Salary to the various workers will take away the major chunk of the budget. Around 11.5 Crore (Rs,114262575) would be set aside for salary. Salary as been calculated on the average salary in the middle east regions and then also converted in Rupees. Salary is given on an equal basis to everyone working on a certain level following the management principle of Equity. It states that “All employees should be treated equally and respectfully. It’s the responsibility of a manager that no employees face discrimination.” So, we will make sure there is salary discrimination. Below is the salary for the employees of the targeted region
|
UAE |
|||||
|
Departments |
Workers |
Managers |
Salary of workers(INR) |
Salary of managers(INR) |
INR |
|
Finance |
51 |
8 |
7737975 |
3236800 |
10974775 |
|
HR |
12 |
8 |
1134000 |
1080000 |
2214000 |
|
IT |
15 |
8 |
1312500 |
1000000 |
2312500 |
|
Sales & Marketing |
105 |
10 |
12075000 |
2550000 |
14625000 |
|
Gen Management |
23 |
8 |
2944000 |
1280000 |
4224000 |
|
Staff |
40 |
8 |
2400000 |
640000 |
3040000 |
|
Total |
246 |
50 |
27603475 |
9786800 |
37390275 |
|
Qatar |
|||||
|
Departments |
Workers |
Managers |
Salary of workers(INR) |
Salary of managers (INR) |
INR |
|
Finance |
20 |
1 |
3034500 |
404600 |
3439100 |
|
HR |
5 |
1 |
472500 |
135000 |
607500 |
|
IT |
5 |
1 |
437500 |
125000 |
562500 |
|
Sales & Marketing |
65 |
1 |
7475000 |
255000 |
7730000 |
|
Gen Management |
5 |
1 |
640000 |
160000 |
800000 |
|
Staff |
8 |
1 |
480000 |
80000 |
560000 |
|
Total |
108 |
6 |
12539500 |
1159600 |
13699100 |
|
|
|||||
|
Kuwait |
|||||
|
Departments |
Workers |
Managers |
Salary of workers(INR) |
Salary of managers(INR) |
INR |
|
Finance |
20 |
1 |
3034500 |
404600 |
3439100 |
|
HR |
5 |
1 |
472500 |
135000 |
607500 |
|
IT |
5 |
1 |
437500 |
125000 |
562500 |
|
Sales & Marketing |
105 |
1 |
12075000 |
255000 |
12330000 |
|
Gen Management |
5 |
1 |
640000 |
160000 |
800000 |
|
Staff |
8 |
1 |
480000 |
80000 |
560000 |
|
Total |
148 |
6 |
17139500 |
1159600 |
18299100 |
|
Bahrain |
|||||
|
Departments |
Workers |
Managers |
Salary of workers(INR) |
Salary of managers(INR) |
INR |
|
Finance |
20 |
1 |
3034500 |
404600 |
3439100 |
|
HR |
5 |
1 |
472500 |
135000 |
607500 |
|
IT |
5 |
1 |
437500 |
125000 |
562500 |
|
Sales & Marketing |
25 |
1 |
2875000 |
255000 |
3130000 |
|
Gen Management |
5 |
1 |
640000 |
160000 |
800000 |
|
Staff |
8 |
1 |
480000 |
80000 |
560000 |
|
Total |
68 |
6 |
7939500 |
1159600 |
9099100 |
Assumptions: Salaries have been taken as the Average salary of UAE. As salary is higher in UAE compared to other regions, we wouldn’t underestimate the funds required for salary. In other regions like Kuwait, Bahrain, and Qatar salary would be lesser as compared to UAE. This would leave a chunk of the salary budget that can be used for the future.
Also being a new region, there might be some unexpected costs. We need to be prepared for such an instance due to which we would set aside around 3.5 crores for such instances. These would be only used for unexpected instances that we haven’t planned beforehand.
The average Rent rate for the middle east region per square feet is around Rs.1000. As per our requirement, we would be needing around 7500 sq feet of property for rent all over the middle east regions. This would cost us around 9 crores for the whole year. So, 9 crores will be kept aside for the rent of the buildings.
Transportation
The export agent and distributors will be compensated for the costs of export and transportation. As the company doesn’t have factory output in these regions, a full-time logistics workforce is not needed. We can hire hourly labor in international countries if necessary. This would cut down our transportation cost.
Finance Department
The finance department will look after the salary of all the employees working the business, the rent of the offices rented all over the regions of UAE, Qatar, Kuwait & Bahrain. The following would be the break-up of money. As mentioned above registration would cost somewhere around 7 lacs. Salary would be a major chunk as it would cost around 11.43 crores. This has been calculated by taking the average salary of the regions and converting it to rupees. Rs.6 Crores will be set aside for emergency and unexpected things that the company might not have taken into consideration. Transportation is cheaper and won’t take a major chunk of the budget. Most of the regions can be traveled by road. Below is the breakup of the budget allocated to the finance department.
|
|
INR |
|
Registration fees |
675405 |
|
Salary |
78487575 |
|
Unexpected cost |
60775000 |
|
Rent |
90000000 |
|
Transportation |
70062020 |
|
Finance Department |
300000000 |
Marketing & Sales Department
This is the most important department where a major chunk of the budget needs to Be allotted. Traditional and digital marketing tactics will be used in the marketing because the target clients will be unfamiliar with the brand therefore marketing and advertising costs are projected to be high especially when you have just entered the market. Advertisement, packaging all would require a good amount of money. A good investment in this will play a role in how our company would perform in the future. The budget allocated for the marketing team would be around 9 crores to fund the advertising and marketing of the product.
HR Department
HR department would not require that much of a budget as other departments. HR costs for hiring and incentives will have to be considered while allotting the budget. 2 crores will be allotted for the HR department to cover those costs.
IT Department
Investment in IT is essential, especially with fast-moving technology. If we need to compete in the market a good IT infrastructure is important. Due to this, the IT department would be allotted around 7 crores. The break up for that as given by the IT Department is as follows:
|
Software |
Number of licenses |
Price |
Total Cost |
|
Office 365 E3 |
~. 750 |
1,440/month |
750*1440*12 = 1.3 Cr |
|
ERP |
200-600 |
NA |
Approx. 1 Cr |
|
CRM |
NA |
NA |
Approx. 1 Cr |
|
Desktop/Laptop |
~ 750 |
40000 |
750*40000 = 3 Cr |
|
IT Accessories(Headphones, cables, projectors..) |
NA |
NA |
10 Lakhs |
|
WIFI |
11 offices |
20,000/month |
11*20000*12 = 26 Lakhs |
|
Miscellaneous Expenses |
NA |
NA |
15 Lakhs |
|
Total |
|
|
6.8 Cr ~= 7 Cr |
General Management Department
This Department will be managing and coordinating all the departments. This department won’t require a large budget allocation. A sum of 2 crores will be allotted to the general manager so that they can function smoothly.
Budget allocation summary
|
|
INR |
|
Registration fees |
675405 |
|
Salary |
78487575 |
|
Unexpected cost |
60775000 |
|
Rent |
90000000 |
|
Transportation |
70062020 |
|
Finance Department |
300000000 |
|
Departments |
INR |
|
Finance Department |
300000000 |
|
Sales & Marketing Dept |
90000000 |
|
Management Dept |
20000000 |
|
It Dept |
70000000 |
|
HR Dept |
20000000 |
|
|
500000000 |
Around 6 Crore included in the finance department is for the unexpected cost (Reserve)
Conclusion
The budget allocation determines the success of any expansion plan. The organization could work more efficiently if the proper amount of stress is applied to the right areas. The penetration into the new region can be greatly increased by concentrating the proper amount of attention on the relevant departments. As seen, we have tried to focus more on sales and marketing and the IT Department as we feel they will have to play an important role for this expansion to be successful. The finance department budget is quite high as they have to pay the costs and invest as it’s a new market. They are also responsible for the transportation costs and paying the salaries. Efficient use of funds is critical and the finance department will be playing a critical role in achieving that objective.Attached File Details
Video
https://www.youtube.com/watch?v=3LKD0HkM2tAComments
Article Type: Business Case Scenario, Case Study Solution Submission
Business Case Detail
Title: NMO S4 SPRINT ONE | BUSINESS CASE SCENARIO - 03
Type: Case Study
Stream: Management
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