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H/508/0525 Business Essentials Unit 2 Level 5

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INTRODUCTION

Business is defined as an economic activity that is concerned with production & distribution of products and services on continuous basis in order to satisfy human needs (Anderson, Sweeney and Williams, 2011). This report is based on case study of Marvin and Smith which is a well known coffee shop of Wandsworth, South London. It was established by Hank and Patty in Jan., 2016. As they gain popularity, they have decided to emphasize on expansion in European Union Country, i.e., in Germany. The report includes all those factors that are taken into consideration while expanding business operation. It also define interpretation of financial statement, marketing mix and summary about international expansion viability.

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TASK 1

1. Market research of European country

As per case study, Hank and Patty have worked together in food & catering sector from many years. After getting experience in this industry, they have decided to start a coffee shop. They spend 12 months in researching and planning to decide about target market, location, key competitors, suppliers, goods & services they would render, capital requirement etc.

After become popular, they are looking for expansion of their business operations in European countries to gain competitive advantage in overseas market and increase their market share. After research, they have decided to start their coffee shop in Germany. Main reason behind choosing this location is that, about 86% of Germans consumes coffee on regular basis. Moreover, large number of people visit country every year which is an advantage for firm to increase its overall coffee sales. As per 2016 study, it has been observed that about 1.45 cup of coffee is consumed by German per day. The country is biggest exporter of coffee products & has huge coffee processing industry as well as stand out in coffee roasting process which proves to be a big opportunity for Marvin and Smith.

Facts based on life style, culture and coffee consumers of Germany:

In Germany, around 28.6% of people are aged between 18 to 30 years and consider coffee machine as status mark (Bradford, 2015). Approximately 50% of coffee consumers are willing to spend money for getting high quality coffee. People under this category are not getting affected by country's economic condition. They always ready to pay a good amount for getting best quality coffee. It is the reason behind having many coffee shops in London.

In respect to ethical consideration, Hank & Patty needs to adopt fair trade standard which depicts about quality of coffee beans. Staff welfare is also a key factor is required to take into consideration. They needs to arrange training session to employees so that, high quality coffee can be offer to consumers. Some other factors such as weather, availability of transportation facilities, layout, location etc. are also considered while setting up a coffee shop in Germany. The location selected by Hank and Patty is centre of city so that consumers can easily reach to coffee shop (Burke and Friedman, 2011). Main objective of firm is to gain high customer loyalty and offer good quality coffee to consumers. For managing it effectively and gain attention of coffee drinkers, they needs to provide theme evening concept. Along with that, they also needs to ensure that books are available at coffee shop as German people like to read books while having coffee. Lastly, supplier availability at chosen location is also a factor they needs to consider. They should have determine all suppliers of coffee bean and select best one among them.

2. Marketing Mix

It is a set of tactics that requires to take into account by every organisation to promote its goods or brand into marketplace (Using the Marketing Mix to Strengthen your Marketing Strategy, 2016).

Product:

As per the given case, Hank and Patty have decided to start their coffee shop in Germany. Main reason of choosing this location is that large German population prefer to drink coffee on regular basis. This becomes a good advantage for them. Moreover, the country is biggest exporter of processed coffee beans. This enables them to utilize finest coffee beans in producing coffee and as these are available within the same country, the cost of transportation in importing coffee is reduced instantly. Along with coffee, Hank and Patty also offer snacks, pastries, cold drinks etc. Offering right product that perfectly meets the needs of customers and satisfy them is the key factor behind growth & success of company.

Price:

It is related to the selection of suitable pricing strategy for a specific product. As German people can pay high amount for consuming quality coffee, Hank and Patty take advantage of it. They use premium pricing strategy in setting prices of coffee which enables them in earning high profits and maintaining good brand image of coffee shop.

Promotion:

This component deals with promotion of product or service in marketplace. As coffee shop of Hank and Patty is new in Germany, they needs to pay more attention towards promoting their brand. They can use print media, social media & electronic media for this (Cavusgil, Rammal and Freeman, 2011). Apart from that, by providing theme evening, it becomes easy for them to gain attention of consumers. They can also distribute pamphlets for promoting their coffee shop in local market of Germany.

Place:

According to given case, Hank and Patty wants to expand their operation in other European country in order to capture market share of overseas countries. They have decided to start a coffee shop in Germany as there are a lot of coffee drinkers. As per the statistics data, it has been observed that around 150 litres of coffee is consumed by Germans in per day. The country holds 3rd rank in coffee market.

3. Implications of need for Marvin and Smith to cover large geographical area

A) Organisation Culture:

It depicts about values, attitudes, behaviour and principles of firm as well as its employees. Culture also involves goal, vision, mission, beliefs, assumptions, norms and values of company. Culture of an organisation depicts about the manner in which things are done within it. Shared values play crucial role in creating valuable elements that are offered by employees in terms of providing high quality goods and services. Culture of firm defines the way in which its manpower interact with each other. A healthy culture encourage good working environment and motivate workforce to perform their duties in more appropriate way. It also assists in gaining loyalty of employees towards organisation and creating its good brand image in market. It administers and identity to firm (Guffey and Loewy, 2012). In January 2016, Hank and Patty set up their coffee venture with the purpose of offering best quality coffee to consumers. They utilized finest coffee beans in producing coffee which is the main reason for getting more customers. Later, when they start earning profits and getting positive response of people, they decide to expand their operations in other country so, they decide to open it in Germany. As Hank Marvin and Patty Smith have good experience in catering and food industry, they were aware about the fact that by satisfying their employees, they can easily achieve their objectives. So, they keep their personnel motivated by engaging them in process of decision making and administer training to them. Along with this, they offer good wages and growth opportunities to manpower. Themed evening such as chat with Nanna and board game night is arranged in coffee shop. Along with this, they have enough effective communication system which assists in eliminating culture barrier if existed (Hair, 2015).

B) Gaining competitive edge

Main purpose of every business enterprise is to gain high competitive edge in market and earn high profits. Before launching coffee shop, Hank and Patty do research and planning by which they get complete information about essential factors which needs to consider while setting up venture. They first set up their outlet in London and after getting good response they decide to expand their operations in Germany. From research, they get know that German people prefer more to drink coffee which is a big opportunity for Marvin and Smith in terms of acquiring large market share in overseas country. So, they start coffee shop in Germany and offer high quality coffee to consumers. They used finest beans for producing coffee which provides them competitive advantage. They conduct various activities and involves employees in them along with customers which motivates them. Other factor that provides competitive edge to firm is its pricing strategy. Based of purchasing power of buyers, they set their prices of coffee. They set it lower than their competitors which provide them competitive edge.

4. Interpretation of financial statements

For analysing profit figures of company, interpretation of financial statement is necessary. It defines about viability of business (Lamb, Hair and McDaniel, 2011). By assistance of these statements, overall performance of firm throughout the year can easily be figure out. Based on given statement, liquidity and profitability can be calculated.

Profitability Ratio:

It is used by firm to determine its overall efficiency & performance throughout the year. It includes gross profit and net profit margin.

Gross Profit

208,000

Net Profit

26,800

Sale

360,000

Ratios

Formula

Results

Gross profit Margin

Gross profit / Total Sales *100

208000/360000*100

= 57.8%

Net profit

Net incomes / Total Sales *100

26800/360000*100

=7.4%

From the above ratios, it can be said that firm has the ability to yield high profits and maintain its sustainability in market.

Liquidity ratio:

This ratio is used by Hank and Patty to determine ability of coffee shop to pay its liabilities (Patten and Newhart, 2017). It indicates that whether current asset will sufficient to meet obligation of firm or not. It includes:

Current ratio: It is the ratio that represents ability of firm to pay back its liabilities. 2:1 is ideal current ratio.

Liquidity ratio: This ratio measure ability of firm to pay their short term debts. It is the ratio of current asset and current liabilities. 1:1 is the ideal ratio.

 

Liquidity ratio:

 

Current ratio

Current assets / Current liabilities

35400/6200= 5.7

 

Liquid ratio

Liquid assets / Current liabilities

35400-8000/6200=4.4

 

ROCE

Operating expenses /Capital employed *100

(26800/ 106800)*100 = 25%

 
         

From the above mentioned table, it can be figure out that liquidity of Hank and Patty's coffee shop is effective in comparison of rivals. It shows that they were utilizing their current assets well.

5. Summary

The project is based on expansion of business operations in European union country. Marvin Hank and Patty Smith are business partners working in food and catering industry from many years (Sundareswaran, 2011). As they have good experience in this sector, they decided to start a coffee shop. In January, 2016, they set up their coffee shop and get good response form consumers. After that, they decide to expand their operations in Germany where people prefer more to drink coffee. They need to consider all those factors which are necessary for setting up business in new country. These factors includes location, layout, capital requirement, transportation facilities, resources etc. As the firm have appropriate resources to set up business in Germany, they gain competitive edge in market. The location they select is in centre of city which assists in gaining attention of large number of customers. As Germany is the biggest exporter of coffee beans, it is a huge opportunity for Marvin and Smith coffee shop. It reduces their transportation cost that incur in importing coffee beans. Their pricing strategy is also one of the success factors of business (Tyson, 2014). It provides high competitive edge to firm. Financial statement of business shows that, they get net profit of £ 26,800 which is a good figure that depicts that business is viable.

CONCLUSION

From the above mentioned report, it has been concluded that Business is an economic system where exchange of products and services takes place for the purpose of earning money. Before set up a business in new country, it is important to consider all crucial factors such as location, capital requirement, availability of transportation and suppliers, resources etc. Consideration of these factors contributes in high growth of business.

REFERENCES

  • Anderson, D. R., Sweeney, D. J. and Williams, T. A., 2011. Essentials of modern business statistics with Microsoft Excel. Cengage Learning.
  • Bradford, M., 2015. Modern ERP: select, implement, and use today's advanced business systems. Lulu. Com.
  • Burke, R. and Friedman, L., 2011. Essentials of management and leadership in public health. Jones & Bartlett Learning.
  • Cavusgil, S. T., Rammal, H. and Freeman, S., 2011. International business: The new realities. Pearson Higher Education AU.
  • Guffey, M. E. and Loewy, D., 2012. Essentials of business communication. Cengage Learning.
  • Hair, J. F., 2015. Essentials of business research methods. ME Sharpe.
  • Lamb, C. W., Hair, J. F. and McDaniel, C., 2011. Essentials of marketing. Cengage Learning.
  • Patten, M. L. and Newhart, M., 2017. Understanding research methods: An overview of the essentials. Taylor & Francis.
  • Sundareswaran, S. D., 2011. Essentials of Managing Stress in the Era of Globalization-An Organizational Perspective. Journal of Contemporary Research in Management. 6(3). p.67.
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