Business Plan - Research Paper Example

Business Plan Table of Contents Business Plan 1 Table of Contents 1 Introduction 2 Goal setting 2 Industry analysis 2 Analysis of the Company 6 Environmental analysis: India and Australia 8 Marketing of the Product 11 Reference 13 Introduction “From the 1950s to the early 1970s, a few thousand Australians relied on the sun to heat water” (Cleveland, 2009, p.271). During the time starting from 1973 to 1979, the numbers increased as a result of major spikes in the oil prices. In the next years, the industry has experienced a slow due to different reasons. This project is an effort to make a business plan for an Australian solar water heater manufacturer XYZ. The company has set up a manufacturing unit in India and export the products to Australia. The report consists of a detailed analysis of the environment, industry and the company itself to back the business plan with a firm ground of analysis. Goal setting Goal setting is an integral part of a business plan. This helps to have a clear idea of the objectives of the company and assists to formulate its strategies in alignment with the goals set. Following are the goals which would be chased in this business plan. To expand the business in India and sell off the products in the Indian market. To export the products in the Australia and re-sell the products in the respective market. To offer a competitive pricing to its customers. To be one of the leading companies in solar water heater market. Industry analysis “The economic structure of an industry is not an accident. Its complexities are the result of long-term social trends and economic forces” (Ehmke, Fulton & Akridge, n.d). The industry analysis will determine the competitive rules and strategies which are required to be formulated by the business. Learning about the industry structure will offer essential insight for the business strategy. Michael Porter has identified five forces which are widely used to evaluate the industry structure. The five forces, together, determine the profit potential of an industry by putting an impact on the costs, prices and necessary investment for a business. Stronger forces are mostly associated with more challenging environment. The industry analysis identifies and evaluates the significant structural factors for competitive success. In the following section, an industry has been carried out to understand the key factors in solar water heater industry. Bargaining Power of Suppliers In the solar water heater industry, there are a large number of suppliers. The organisation would establish its production houses in India, where the production cost would be quite low than that in Australia. In this industry, the bargaining power of the suppliers is quite low as the companies do not have to incur any switching cost while changing their suppliers. The concentration of the solar water heater industry is not quite intensive. As a result, suppliers cannot have much power over the manufacturers. Bargaining Power of Buyers The products are mainly made for the rural areas, where the concentration of the buyers is moderate to high. However, the concentration is quite low in the urban areas. In the year 2000, around 4, 50,000 households in Australia used to posses solar water heaters. There are a number of products like electric heaters which can substitute the solar water heater products. However, there can be a switching cost for the users. For an instance, if someone is using an electric heater, the user would have to bear electricity cost which the user of the solar water heaters would not have to bear. So, the buyers’ power is moderate in this industry. Figure 1: Australian Solar Water Heater Production (Source: Morrison, 1995) Threat of Entrants The market for solar water heaters is not considerably large. There are few numbers of players in this industry. Although, the industry is quite capital intensive and hence, any organisation can enter into the industry. However, as there are a number of substitutes of the products, companies may not be interested to dive into this industry. The existing and leading players in this industry have large economies of scale. At the same time, the companies would also have to develop the distribution channel to reach at the target customers of the products. So, it would not be wrong that the threat of entry in this industry is moderate to low. Threat of Substitutes There are a number of substitutes for the solar water heater products. Electric heaters are significant substitutes of these solar products. Although, the users have to bear a significant amount of operating cost in the electric heater, still the threat of substitutes is quite high for the industry. Even in India, people heat the waters using gas, electric water heaters and immersion heaters. So, it would not be wrong to say that the solar water heater producers have to compete with all the organisations producing such substitute products. Competitive Rivalry in Industry There are few players in the industry. The products are almost same in their attributes and quality. However, the organisations in this industry also have to deal with other water heater producing companies. So, the competitive rivalry is quite high in this industry as companies struggle to get the market share with lesser number of customers. All these forces have influenced the industry to shape up its characteristics and strategies. The industry is based on limited number of customers. However, there is enough opportunity to expand this business and make it attractive for all the households. The following image shows the share of solar water heater capacity added. Figure 2: Share of Solar Water Heater Capacity Added (Source: Greentech, 2010) Analysis of the Company XYZ is an Australian company which deals into solar water heater products. The company has realised that in future the market can have enough opportunities to expand; however, a good marketing of product is necessary to let them realise the advantages of such products. XYZ is committed to offer its customers the products at a competitive pricing. In this case, the company’s strategy is to keep its production units in India. In such a way, the company can tap the Indian market as well as can export the same in the Australian market. So, the company has a bigger market to tap on. The company has adopted the strategy of foreign direct investment to globalise its operations and business. Two significant influential factors are driving its strategy to expand into India. First of all, the company will take the advantage of lower production cost as compared to the home country. Secondly, the choice of location will assist them with double objectives: to sell off its products in the regional market as well as sell off them to the home country. Following is the analysis of strengths, weaknesses, opportunities and threats of the company. Strengths The company has opportunity to sell off its products in both the market of Australia well as India. XYZ has its production unit in India. Compared to Australia, in India, the labour cost would be quite low. Moreover, the cost of raw materials is also quite less in India. As a consequence, the organisation would be able to reduce its cost of manufacturing, which would in turn enable them to sell off the products in Australia at much competitive price. This strategy is expected to fetch them survive over its competitors by differentiating its products based on cost leadership. The company can also use the technological advancements of both the countries including India and Australia. So, the company can get hold of the required resources whenever necessary. The company has an extremely talented human resource which helps them to produce, market and distribute the products to the desired customer base. XYZ also has a strong distribution channel which helps them to reach at the desired customer base. Weaknesses The company deals in an industry where there is a limited customer base. This can be weakness for its business to deal with lesser number of customers. Due to the recent recession, the company has gone through a very bad patch. As, the purchasing power of the consumers have decreased due to the trembled economic situation, the company also had to experience dimming market demand. The company has extended its business in India. In this case, it has started off with establishing its new set up of manufacturing unit in India. The company is not known to the Indian people. So, it would be tough for the company to tap the Indian market compared to the existing Indian companies in there. There is much iota of doubt regarding the receptiveness of Indian people about the products manufactured by a foreign company. The company is also required to build up its customer base from the scratch. In this case, it will have to face a lot of difficulties. The company will have to bear a higher set up cost than in mergers and acquisitions. However, the company can collaborate with an Indian company to sell off its products to get acceptance to the Indian consumers. Threats The target customer base is quite less in this industry. The solar water heater products have many substitutes also which can substitute them. There is a high amount of threat emerging from these types of products. At the same, the company would also have to compete with its competitors as the products are almost same in the attributes and characteristics. The company is required to evaluate its threats and make those into opportunities by using its strengths and removing or reducing its weaknesses. Opportunities As mentioned earlier, as of now the existing customer base is quite limited for the company. Although, the company have now an extended market both in Australia and India, still the target customer base is quite less. However, this can be though as a positive opportunity for the company. The industry can extend its business and target more customers by displaying the advantages of these products. A strong distribution network would be useful to make the customer base larger than the present. So, the company has enough opportunity which can be explored to increase its strengths and reduce the threats and weaknesses. Environmental analysis: India and Australia In this section, the PESTLE analysis would be done considering the business environment in both the countries, India and Australia. Political and Legal Factors In Australia, the Government is committed to offer affordable solar hot water systems. Like any other industry, the solar hot water supply chain is pretty complex. . “Bad government policy like this unnecessarily puts Australian jobs under threat at a time when we can least afford to lose any jobs, let alone green jobs” (Clean Energy Council, 2009). The Australian hot water market consists of more than 750,000 installations in replacement or breakdown and new homes per annum while over the last five years, solar hot water installations have experienced a growth of 3-4 %. Certain states such as South Australia and Queensland have moved to prohibit the electric storage tank installation in the replacement market and hence, fostering the growth in solar market. However, if the other states did not adopt the same strategy or the government does not push for national legislation in the prevention of electric tanks, the solar hot water industry will not be able to fetch higher growth rate. In India, during the year 2009, the sale is estimated at 0.55 million m2. Starting from the year 1995 till the year 2008, the industry has experienced overall CAGR of 16.8 % (Ielasi, 2010). Economic Factors During the recession, both the regions including Australia and India have experienced an economic downturn. Like other industries, this industry also had to experience slow market demand. In India, the solar water heaters are mostly used in the rural areas. The purchasing power of the population is definitely a driving factor in there. In Australia, government is trying to provide the products at affordable price, which can put a positive effect on the market. Social Factors Social factors are also very significant in this case. There are a number of substitute products of high range which can be used as a water heater, mainly in the households. In both the countries, the changing lifestyle can put an impact on the solar water heater market. Technological Factors With the technological advancements, there have been changes in the design of the water heaters. Traditionally, households used to use the thermosyphon systems which are solar collectors and storage tanks installed on the roofs. With the passing time, the design has changed to become more compact and user friendly. So, technological factors are quite significant in this industry. Environmental Factors In the wake of recent environmental awareness among the consumers, the consumers are looking forward to environment friendly products. From such a perspective, the solar water heater products would fit the requirements. The significant advantage of the product is that it saves on energy as the products do not require electricity to operate. At the same time, the manufacturing of the products is also required to be in line with the environmental rules and regulations. All these factors are important. The industry is surely facing enough challenges, but at the same time it has enough opportunities to experience an increased growth in the near future. Marketing of the Product Marketing of the product is significant as this would help the company to sell off its products in the Indian as well as Australian markets. The company must consider the marketing mix including the product, price, place and promotion. The product is required to be compact, useful in the household activities as well as in larger institutions. XYZ must dive to offer quality products at an affordable price. The company can do so by cost reduction its manufacturing units and export costs. As mentioned earlier, the price of the product is required to be kept at an affordable rate. The users of the products are mostly from the rural areas; this is mostly true in India. The company can keep the price competitively low, even in Australia as the company would export its products from the production units in India. The marketing of the products would demand a strong distribution network. A strong distribution network is very important to reach at the target customers. XYZ is new in India. As a result, the company is required to carry out intensive promotional activities in India. The company can also keep contact with the households, primary health-centres, dhabas, village industries and hostels to sell off its products. The organisation can also carry out some promotional activities in these places to attract more customers. In India, the company would also require to consider the cross cultural impacts on the target customers. The advertising is required to be in alignment with the same. Reference Clean Energy Council. April, 2009. Bligh’s solar hot water heating undermines industry. [Pdf]. Available at: http://www.cleanenergycouncil.org.au/cec/mediaevents/media-releases/April/untitled0/mainColumnParagraphs/0/text_files/file/SWHresponseFINAL.pdf [Accessed on January 24, 2010]. Cleveland, J. C. 2009. Concise Encyclopedia of the History of Energy. Academic Press. Ehmke, C. Fulton, J. & Akridge, J. No Date. Industry Analysis: The Five Forces. [Pdf]. Available at: http://www.extension.purdue.edu/extmedia/EC/EC-722.pdf [Accessed on January 24, 2010]. Greentech. January, 2010. Solar Water Heaters in India: Market Assessment Studies and Surveys for Different Sectors and Demand Segments. [Pdf]. Available at: http://ecogeneration.com.au/news/solar_hot_water_systems_in_australia/052364/ [Accessed on January 24, 2010]. Ielasi, T. 2010. Solar hot water systems in Australia. [Online]. Available at: http://ecogeneration.com.au/news/solar_hot_water_systems_in_australia/052364/ [Accessed on January 24, 2010]. Morrison, G. 1995. The Australian solar hot water heater industry is alive but not well. [Pdf]. Available at: http://www.solar1.mech.unsw.edu.au/glm/papers/Aus%20SWH%20Industry1995073.pdf [Accessed on January 24, 2010]. Read More