NMO S4 SPRINT ONE | BUSINESS CASE SCENARIO - 03
Submission BCS
International expansion solutions of Ramalingam Foods by KLS Consultants
Submission Date & Time: 2021-11-24 08:17:10
Event Name: NMO S4 Sprint One - IIM Visakhapatnam
Solution Submitted By: Seetha Rama Krishnam Naidu Kaisarla
Assignment Taken
Develop a Hiring & Incentive strategy for Human resources working on international expansion to enable a speedy growth.Case Understanding
Mr. Ramalingam Venkatesh founded Ramalingam Foods in south Bombay in 1965, and it is known for its freshly cooked south Indian meals and filter coffee. The business is now trying to expand globally. As a result, they face a number of issues in this regard, including: 1) Employees may lack knowledge of the items supplied. 2)In a new international location, employees may struggle to comprehend the culture and tastes of the locals. 3)Hiring new personnel for a new overseas location is tough, and the company will face challenges as a result of reasons such as poor or insufficient capital, cultural differences, and other considerations.BCS Solution Summary
The corporation intends to strongly penetrate the market, covering all vital aspects, with the 50 crore set aside for expansion. The company hopes to earn a revenue of 30 crores in the first year by exporting from Indian manufacturers to the five south Asian countries (Singapore, Myanmar, Indonesia, Thailand, and Malaysia) (from international markets). Manufacturing costs (10.5 crores) are the most expensive, followed by marketing and wage. The 30-crore revenue is expected to generate operational income of 6.3 crores and net income of 1.8 crores. Ramalingam Foods is allotted a 50-crore budget for expansion, and a reasonable allocation has been calculated. Factory and land are the most important investments in the allocation.Solution
Sales & Revenue:
The company expects to generate $30 million in sales in its first year from all five nations combined. This decision was made based on two factors: the existing production capacity of Indian companies and a penetration rate of 5-7 percent in international markets (the 5 countries). The monthly sales target rises from 28k units in April FY 2018-19 to 3.2 lakhs in March FY 2019-20. This is a monthly gain of 25%.
The costs of existing products have remained unchanged, owing to the fact that these countries' living levels are identical to those of India. Because the export expenses are not prohibitively high, there is no need to raise the mark-up on existing products. The prices of these items will be a bit higher than the existing products:
- 200 grams- Rs. 111
- 500 grams- Rs. 249
- 1000 grams Rs. 486
|
Product Categories |
Name |
Weight |
Price |
|
1 |
North Indian dishes Instant Mix |
200 Gms |
89 |
|
2 |
North Indian dishes Instant Mix |
500 Gms |
199 |
|
3 |
North Indian dishes Instant Mix |
1000 Gms |
389 |
|
4 |
Desert Mixes |
200 Gms |
110 |
|
5 |
Desert Mixes |
500 Gms |
249 |
|
6 |
Desert Mixes |
1000 Gms |
499 |
|
7 |
Chutney Powder |
200 Gms |
75 |
|
8 |
Chutney Powder |
500 Gms |
199 |
|
9 |
Chutney Powder |
1000 Gms |
329 |
|
10 |
South Indian Instant Mix |
200 Gms |
89 |
|
11 |
South Indian Instant Mix |
500 Gms |
199 |
|
12 |
South Indian Instant Mix |
1000 Gms |
389 |
|
13 |
Instant Coffee Mix |
200 Gms |
149 |
|
14 |
Country Specific 1 |
200 Gms |
111 |
|
15 |
Country Specific 1 |
500 Gms |
249 |
|
16 |
Country Specific 1 |
1000 Gms |
486 |
|
17 |
Country Specific 2 |
200 Gms |
111 |
|
18 |
Country Specific 3 |
500 Gms |
249 |
|
19 |
Country Specific 4 |
1000 Gms |
486 |
Revenue from product type as a percentage of total revenue:
We plan to market the existing product line, with those products accounting for 90% of revenue and the newly announced country-specific products accounting for 10%. South Indian meals will account for around 40% of the present items, while the north Indian mix will account for 30%. The information is listed in the table below.
|
Product Type |
Revenue Percentage |
|
North Indian dishes Instant Mix |
30% |
|
Desert Mixes |
10% |
|
Chutney Powder |
7.5% |
|
South Indian Instant Mix |
40% |
|
Instant Coffee Mix |
2.5% |
|
Country-Specific |
10% |
Country-wise split of Revenue Estimate
The 5 chosen countries for expansion differ on factors such as the size of customer target and standards of living.
|
Country |
Population of Indians |
Country-wise projected Revenue |
Revenue compared to total revenue |
|
Singapore |
5.1 |
2.59762309 |
8.658743633 |
|
Myanmar |
29 |
14.77079796 |
49.23599321 |
|
Indonesia |
2.3 |
1.17147708 |
3.904923599 |
|
Thailand |
2.5 |
1.273344652 |
4.244482173 |
|
Malaysia |
20 |
10.18675722 |
33.95585739 |
|
Total |
58.9 |
30 |
100 |
Sales Target for FY'19-20
From the above revenue projections, a sales target (quantity) has been made. Here the main assumption is that 200 grams, 500 grams and 1000 grams are sold in the ratio of 2:2:1. This assumption is based on the notion that people tend to buy smaller packets more. The sales targets are made using size of target consumers in each country. A 25% monthly growth has been projected based on a 5-7% penetration in the markets.
|
FY'19-20 |
Sales Target |
|
April |
29224 |
|
May |
36530 |
|
June |
45662 |
|
July |
57078 |
|
August |
71347 |
|
September |
89184 |
|
October |
111480 |
|
November |
139350 |
|
December |
174187 |
|
January |
217734 |
|
February |
272168 |
|
March |
340210 |
|
Total |
1584153 |
Running Expenses
Manufacturing costs
This cost includes the cost of raw materials as well as the ongoing maintenance of factory machinery. Current factory production will be enhanced (if factory utilisation can be increased) and additional quantities will be produced for export. As a result, this cost may be properly estimated because the corporation has previous manufacturing data. The growth of staff and machinery in each factory might help to attain better economies of scale.
Salaries in Human Resources
Each corporate office in each of the five cities employs five people. The office manager will be paid 70K per month, while the rest of the staff will be paid 60K. This figure was calculated by factoring in the cost of living in these countries. The salaries were determined by taking into account the countries' purchasing power parities (PPP). Malaysia, Thailand, and Indonesia are all countries in Southeast Asia. Singapore and Indonesia have PPPs that are very similar to India's. This indicates that the cost of living in these countries is nearly the same as in India, and hence the salaries appear reasonable. Singapore, on the other hand, is an outlier, as evidenced by the employees that work there.
Expenses for marketing and advertising
Traditional and digital marketing tactics will be used in the marketing. Because the target clients will be unfamiliar with the brand, marketing and advertising costs are projected to be greater. Because the company is a new entrant in the worldwide market, even a 5% market penetration requires a good expenditure. With a sales objective of around 30 crores, the marketing, advertising, and promotion expenditure is set at 4.5 crores (15 percent of revenue).
Expenses for export and operations
The export agent and distributors will be compensated for the costs of export and transportation. Because the company will not have factory output for the first year, a full-time logistics workforce is not required. If necessary, we can engage hourly labour in international nations. This will be less expensive than hiring a full-time logistics and operations team.
Legal Costs- Licenses and Tax
There are various one-time costs for permissions such as;
- IEC Import-export code,
- FSSAI License,
- NOC Certificate,
- RCMC (Registration cum membership certificate)
Permission for corporate offices and trade in the 5 countries also include approval from;
- Singapore-accounting and corporate regulatory authority (ACRA)
- Malaysia-Suruhanjaya Syarikat Malaysia (SSM)
- Thailand Ministry of commerce
- Directorate of Investment and Company Administration (DICA)
- Indonesia Investment Coordinating Board
Other Expenses
IT Front
Investment on IT is essential since data management and IT solutions have proven to be game changers in cost optimisation. Being a large company with expansion to 5 different countries, big data analytics and latest IT software/systems are prioritised. The table below shows the expenses for IT Department.
|
Department |
Name of Software |
Total Price |
|
Business Expansion and Marketing |
AI based servers (Microsoft Azure) |
1,26,380 |
|
Hadoop |
8,52,000 |
|
|
Mobile App and Website Designing |
10,00,000 |
|
|
Cloud based ERP |
2,62,487 |
|
|
Finance Department |
Financial Management Software |
11,36,000 |
|
HR |
HR Cloud |
1,01,672 |
|
Business Advisory |
Cloud Based Transport Management System |
1,50,000 |
Rent and other HR Costs:
The 5 corporate office will have monthly rent payments which are converted into rupees using the currency exchange rates. As done for wages, Singapore is taken to have a higher rental charge. Sufficient funds based on average rent for working space is used to allocate budget. Hr costs for hiring and incentives also have an amount of 20 lakhs kept aside.
Miscellaneous and Overheads:
A 5% overhead and miscellaneous expense on revenue is accounted for since the company is expanding into new markets and there are uncertainties in expenses. Besides, a manufacturing plant can have other expenses and supply chain intricacies may also add to the miscellaneous costs.
Operating and net Income
An operating income (operating Revenue of 30 crores - operating cost of 23.7) or EBITA (Earnings Before Interest, tax and amortization) of 6.3 Crores is projected. The net income (operating income - tax of 4.5 crores) of 1.8 crores is estimated. Note that these figures are derived by taking costs on the higher side (Conservatism principle of accounting). The profit is expected to go up considering that factories will be setup in these countries and economies of scale can be achieved in the coming years.
50 crores Budget allotment
|
Investment |
Budget allocation (in crores) |
|
Working Capital |
10 |
|
Marketing |
4.5 |
|
R&D |
5 |
|
Land and factory |
20 |
|
VC Investment |
7.5 |
|
Machinery |
3 |
|
Total |
50 |
Conclusion
In the calculations above, certain assumptions were made, which are indicated alongside. The expansion process for Ramalingam Foods can be made easier with a detailed accounting of predicted revenue and costs. The 50-crore budget allocation was made after examining all of the important components of growth in this business.Attached File Details
View Attachment file (NMO Finance.pdf)Video
https://youtu.be/qnhDWuFEoZsComments
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
Participant
Indian Institute of Management Visakhapatnam
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