NMO S4 SPRINT ONE | BUSINESS CASE SCENARIO - 03
Submission BCS
Budget Allocation
Submission Date & Time: 2021-11-25 11:32:02
Event Name: NMO S4 Sprint One - IIM Visakhapatnam
Solution Submitted By: Dhruv Gandhi
Assignment Taken
Finance Department : Develop and propose a financial plan with allocated budget for International expansion.Case Understanding
The Ramalingam Foods were started in 1965 in Bombay, it sold authentic south Indian food and filter coffee but later in 1975 it started to selling batter for idli and dosa because emergency was imposed in India and the businesses for asked to sell the products at a lower price. This continued till 1990’s until Mr. Ramalingam’s son joined business and to expand it, he started selling power mixes so that the shelf life is increased, and the transportation gets easy. To further expand the business, he wanted to cater to the demand of Indian’s living in other countries. The problems that may arise are as follows: 1. The unexpected costs that may arise 2. The costs related to exports 3. The costs related to licenses for business in those countries 4. Cost of hiring a manager for local guidance 5. Costs of maintaining the standards of packaging, labeling and hygiene standardsBCS Solution Summary
The company has a budget of Rs. 50 Cr must be allotted to the following heads to maintain the optimum levels for the expansion of business in other countries. According to the business model of the company we have decided to build a new factory in India and export the products in the said countries by opening warehouses in those countries, this will be cost friendly as in India the company has all the necessary licenses and the workforce but to set up plants in other countries would require a lot more investment in the form of land, labor, and other legal formalities. Also, if they set up plants in India, they could use the extra capacity for trade in other countries.Solution
Ramalingam should start its foreign investment in the countries which have the highest population of Indians so that the product can be exposed to a larger number of public. The following are the counties which the company will want to look at:
|
Country |
Population |
|
Saudi Arabia |
4,124,000 |
|
Nepal |
4,010,000 |
|
UAE |
3,860,000 |
|
Malaysia |
2,109,200 |
|
England |
1,400,000 |
|
Total |
10,896,563 |
Now let’s assume that the product reaches 30% of the population and 5% of those people consume would consume these and each people buy this product on an average of 8 times in a year (i.e., 13,07,588) and the average price of the products which the company sells is Rs. 245 (including the prices for new country specific products) so the approximate revenue which the company would earn in a year is Rs. 32,04,30,000 (approx.).
New Product
A few new country specific options can be launched in the market for the consumers who have developed the taste for the local cuisines the price can be same for those, and they must come in the same three packings (i.e., 200gm, 500gm, 1000gm).
Revenue
The revenue from the countries can be determined by the population of those countries and factors such as the purchase price parity will determine the standard of living in those countries and thus would affect the consumption and the revenue which the company would earn from the specific countries and those are as follows:
|
Country |
Population of Indians |
Country-wise projected Revenue |
Revenue compared to total revenue |
|
Saudi Arabia |
41.24 |
8.77260157 |
29.24% |
|
Nepal |
40.1 |
8.53009998 |
28.43% |
|
UAE |
38.6 |
8.21101893 |
27.37% |
|
Malaysia |
21.09 |
4.48627951 |
14.95% |
|
England |
14 |
2.97808977 |
9.93% |
|
Total |
141.03 |
30 |
100 |
Conclusion
The company has a budget of Rs. 50 Cr must be allotted to the following heads to maintain the optimum levels for the expansion of business in other countries. According to the business model of the company we have decided to build a new factory in India and export the products in the said countries by opening warehouses in those countries, this will be cost friendly as in India the company has all the necessary licenses and the workforce but to set up plants in other countries would require a lot more investment in the form of land, labor, and other legal formalities. Also, if they set up plants in India, they could use the extra capacity for trade in other countries. The following are the expenses the company must take into consideration: 1. Legal: The countries in which the business is being expanded has higher PPP or have some legal restrictions so it would be beneficial for the company to manufacture in India as the countries have a GST rate of 6-8% which includes cost, insurance, and freight. Also, the company has a 22% corporate tax, and the company has an operating profit of 150 cr. so the effective tax rate for the company would be 25%. And to lay a warehouse in other countries the company would need the following licenses: • RCMC (Registration cum membership certificate) • FSSAI License, • IEC Import-export code, • NOC Certificate, 2. Cost of Manufacturing: If the plants are set up in those countries, then the cost of manufacturing would rise as these would have different import duties for raw material or machinery and these countries would also have different rates for operating expenses and overheads. Producing in India with similar factors would help the company achieve economies to scale. 3. Operating and Marketing expenses: The company would have to hire employees for managing the warehouses and to market the products in the respective country also they would have to hire employees to look for the distribution channel and one who handles the transportation. The salaries would be according to the PPP of the country and the salary would be higher for England, Saudi, UAE (Rs. 100,000) and would be less for Nepal and Malaysia Rs. (Rs. 50,000). Also, the company would have to rent or buy the warehouses and the transport for its distribution channel. The company also needs to allot Rs. 5 Cr. for marketing as the company needs to fulfill the said penetration in the market to attain its forecasted sales. The marketing channels for the company could be Television, social media, Website to gain an edge over its competitors both local and international 4. Other Expenses: 5% of the total budget would be kept for its other miscellaneous expenses like installation of computer systems and buying software’s etc. The budget allocation Expense Category Amount Estimate (in crores) Cost of manufacturing 10.5 Marketing 5 Salary 2.4 Tax 4.5 Miscellaneous & Other expenses 2.5 Legal 1 Total 25.9 Investment Budget allocation (in crores) Total ofAttached File Details
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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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