Mercedes Cars Company in Doha Market - Research Paper Example

Mercedes Cars Company Contents Mercedes Cars Company 1 Contents 1 Introduction 2 Market Data 2 Competition 2 Recent developments 4 Sales estimation with motivation 6 Balance sheet 7 Profit and Loss Account 10 Conclusion: 12 13 Introduction Mercedes Cars Company is eyeing to open a new venture dealership in Doha. It is a German based company that was founded in 1926 by Karl Benz and Paul Daimler. Its headquarters is located in Stuttgart. The organization can basically use either of two methods for starting their venture in Doha market. It can create its own new venture or it can take over any existing automobile company in Doha. Here, the organization has chosen for creation of a new venture in the Doha market. This report aims to discuss about the total market scenario. It will present competition that Mercedes may face in the Doha automobiles market. With the help of this report, recent developments are also going to be discussed. Furthermore, the report will also present the details of entry of the organization into the market. Different financial facts and figures are going to be discussed regarding the new venture of Mercedes Cars Company. It is step-by-step report, which will help the organization to identify different factors regarding their new venture creation in Doha market. At the end of the report a detailed conclusion will be drawn that would evaluate the current operation of the company and how much successful it would be. Market Data Competition There are almost 60 automobile dealers in the Doha market. Being the capital city of the state of Qatar, the Doha market is highly competitive in nature. A number of top manufacturing automobile companies have their dealers in this particular market. It has been noticed that the market has registered impressive growth within the automobile sector. This is the reason that each and every automobile manufacturing company is competing very hard with the aim to increase their market shares in Doha. The market trends show that the demand for BMW cars is rising in the market, and as a result, BMW has registered high selling figures. The year to year sales has increased by 30% when just considering its BMW 5 series model. BMW 7 Series model also was seen to produce higher sales in the market, as opposed to several other cars. It is very clear from the above facts that Mercedes Cars Company faces competition mainly from BMW car dealers. Apart from that, people of the city are greatly attracted to cars that do not belong to such big brands. Thus, this again points to the ever-increasing competition that exists in the automobile industry. As a result, there are lots of options in the Doha market for the public to choose from, ranging from top automobile manufacturing companies to small and newly entering brands. On the other hand, the bargaining power of the customers is very high in this particular market. The industry has recorded almost 20% growth in 2013. High industry growth enables the industry to be more and more competitive in nature. Several big players of the industry, around the world, are investing more and more money in the Doha market. Different dealers of the country are trying to provide state of the art facilities in terms of selling and servicing cars. Thus, it is understood that dealers are competing in a cutthroat battle to create loyalty in their customers (Irawati 134). Apart from BMW, Toyota and Nissan are also very famous automobile brands in this market. It is evident that Doha market is a famous destination for different automobile companies around the world, thus there exists serious competitions among the various luxurious car brands of the globe. Recent developments In 2010, the Government of Qatar urged the introduction of more and more green automobile products. The government had fixed its focus on reducing the overall carbon emission percentage of the population in the country. In 2012, Porsche and Volkswagen announced that these two organizations would open a joint test centre for manufacturing lightweight automobile materials in Doha. Recently the industry had undergone a good growth percentage in this sector. Market has registered 15-20% growth in just the year of 2012. Furthermore, in the same year, a grand motor show was held in the city. Most of the top famous brands of the world participated in that motor show. The market thus took the steep rising curve in terms of developments within the markets of the GCC region. It could be said that on an overall basis, the whole of the Middle East market is doing very good in the automobile industry. Thus, as a result, the rest of the world is facing severe challenges. However, the Doha market is simultaneously doing well with their other Middle East counter parts. It was identified that in the first half of 2013, Toyota brands occupied first four places of highest selling cars in Doha market. Nissan’s D22 had its footprints in the fifth place of highest selling car’s list. On the other hand, Hyundai was found to be the leading bus seller in the market. Toyota sold 15,346 vehicles in the market, and its market share was 36.2% in 2013. Nissan had 16 % percent market share in the same year, and it occupied 2nd place in the industry (Plunkett, 124). Hyundai occupied third place with 9.1 % market share, while Mitsubishi was fourth with 4.5 %. Kia motors found itself a place among the next fifth rank. All these five companies were seen to occupy 70% share in the total market. In 2013, the market had scored an all time record and obtained 7.6% growth in lightweight vehicles. Recently, the industry has started facing some issues related with the salary of employees, increase of rents in the city etc. Dealers are not getting enough space for servicing cars that are being brought to them. Thus, consequently they face problems regarding after sales services. Despite such issues, the demands of cars are growing in the market. Recently, India based Tata motors has launched PRIMA trucks in Doha. It is very clear from the above developments that the market has great potential. Developments are very decisive and significant in nature, and thus, show the significant profits an automobile company can make upon entering the Doha market. The above chart is showing number of car sales in 2013. The abaove chart gives a clear idea of market share of various automobile companies. Sales estimation with motivation Sales estimation of this market is very high, and the various dealers of the country are expecting 100 % growth in new vehicle sales in the upcoming two to four years. It is being estimated that number of sales will increase over 200,000 units. The Government of Qatar is spending lots of money for upcoming 2022 FIFA world cup (Dijck and Gerrit 145), in addition to several related as well as other construction purposes. It will certainly increase sales of different vehicles in the country. The population of the country is also increasing, and this will provide necessary incentive or motivation factor for Mercedes Cars Company. Global automobile industry is going through a tough phase, and problems and their effects are highly evident within different countries. This is a very critical situation for the automobile industry. However, markets like Doha have weathered the storm very well. The market is coming up with consistent growth in the industry. It is a huge motivation for the organization under study. Different global players are finding great potential in this market. Being one of the richest nations (in terms of GDP), the market has significant potential yet to be fully tapped. People of the country have sound disposable income, and it is seen that maximum number of people own more than one car, which is, thus, a great motivation for Mercedes (Peck 117). The market will become an automobile hub in the near future, and since it has huge natural gas reserves, the industry will immensely grow in the coming years. Therefore, this is also seen to be a very great motivational factor for the company. The market has very cheap fuel rates, and these also are a primary reason for the company to invest in Doha. Balance sheet All amounts are in Qatari riyal. Projected balance sheet on 1.1.2015   Assets 250000 Furniture cost 300000 Cash 1233378 Sundry debtors 340000 Add on 1345600 Property 2566689 Machineries 21457890 Less Depreciation Accumulated 2145789 Net, Equipments 19312101 Total Assets 25347768     Capital & liabilities   Loans 2000000 Fund of share holders 20000000 Borrowings for loan terms 2047768 Payables 300000 Retained earnings 1000000 Total 25347768 The above balance sheet shows the financial condition of Mercedes Cars Company (Spurga 119). The company will source its funds with suitable combination of both equity and debt. Mercedes Cars Company plans to raise 20000000 Riyal from its shareholders. 2012-2013 Balance Sheet Analysis: All amounts are in Qatari Riyal Particulars 2012 2013 Assets Intangible assets 40494.04 41059.18 Plant Equipment And Properties 93881.47 95276.08 Investments 342355.84 349374.50 Leases and receivables 19615.80 20012.31 Debtors 34377.78 36724.93 Inventories 80760.21 86407.04 Marketable debt securities 25513.30 28854.00 Cash 50115.08 51751.25 Other financial assets 27163.14 26903.36 Other assets 28890.46 30923.14 Total Assets 743167.12 767285.80   Capital & liabilities   Equity 179249.38 183127.88 Financing liabilities 347519.57 359337.36 Provisions 111542.06 113939.35 Creditors 40252.49 46309.51 Other financial liabilities 38506.94 36971.04 Other liabilities 26096.67 27600.67 Total 743167.12 767285.80 The analysis of the balance sheet offers a better insight into the financial fitness of the company. The comparison of “Mercedes” (Interim Report Q1 2013, 2013, p. 5) balance sheets during the years 2012 and 2013, gives a common indication of business performance of the company. An evaluation of current assets and liabilities indicates the ability of the company to meet the cash commitments if they are unpaid. In the year 2012, the total assets were 743167.12 riyal and in the year 2013, they were seen to be 767285.80 riyal. A business that is capable of meeting its cash obligations as they become due is said to be highly liquid. Balance sheet of a company in a strong financial situation will replicate a surplus of current assets over the current liabilities. Normally, that surplus should be one and half to double as much in the current assets as in the current liabilities, and thus this surplus can be used for various organisational requirements. 2014 Balance Sheet Projection: All amounts are in Qatari Riyal Projected balance sheet on 1.1.2014   Assets 200000 Furniture cost 250000 Cash 1000000 Sundry debtors 180000 Add on 905000 Property 1064697 Machineries 9057890 Less Depreciation Accumulated 997637 Net, Equipments 10002000 Total Assets 23657224   Capital & liabilities   Loans 2000000 Fund of share holders 18609456 Borrowings for loan terms 2047768 Payables 100000 Retained earnings 900000 Total 23657224 The above “balance sheet” (Kapan & Minoiu, 2013, p. 3) shows the financial condition of Mercedes Cars Company. The company will source its funds with suitable combination of both equity and debt. The organisation plans to raise 18609456 Riyal from its shareholders. However, for starting a new business enterprise, “Mercedes” (Interim Report Q1 2013, 2013, p. 5) has two options for acquiring land and building. Either they can take it on a lease agreement, or they can purchase it. Taking on rental basis will allow flexibility, and only result in a small amount of initial investment. If a company has sufficient amount of cash balances, they can invest it in other business also. On the other hand, they can utilise it for some other trade purposes also. In the year 2012, the investment amount was calculated to be 342355.84 riyal, and in 2013 it was 349374.50 riyal. The main source of fund is the shareholders, mainly, the equity shareholders. However, the creditors are also a contributor for the Mercedes Cars Company’s finance, as they provide debt capital. Profit and Loss Account Profit and loss statement projected on 1.1.2015     Revenue 4500000 Cost of goods sold 220000 Gross Profit 4280000 Maintenance cost 60000 Cost of marketing 30000 Starting cost 450000 Cost of overhead 22000 Net profit 9562000 It is clear from the above statement that the company will register 9562000 riyal as net profit at the end of the first year. Whereas, the gross profit of the organization will be 4, 28, 0000 riyal. (Clampitt, 2007). Total operating expenses in the first year will be 5,62,000 Riyal (Hanif 101) and, furthermore, the company will earn 4500000 riyal as revenue for the first year. 2012-2013 P & L analysis: All amounts are in Qatari riyal Particulars: 2012 2013   Revenue 123104.63 118961.80 Cost of goods sold -94369.13 -94619.79 Gross Profit 28735.50 24342.00 General administrative expenses -4247.66 -4275.00 Selling expenses -10901.72 -11753.98 Research and non-capitalized development costs -11753.98 -4616.82 Share of profit/loss from investments accounted for using the equity method 446.64 9.12 Other financial expense -706.42 -437.53 Earnings before interest and taxes 9561.79 4179.30 Interest income 401.07 319.03 Interest expense -879.61 -1034.57 Profit before income taxes 9083.24 3463.76 Income taxes -2588.70 -893.28 Net profit 6494.54 2570.47 The “profit and loss” (Khasanah et al. 2013, p. 1) account shows the income and expenditures of the Mercedes Cars Company. In the year of 2012, the gross profit was 28735.50 riyal, which declined in the year 2013 to 24342.00 riyal. But the cost of goods sold was found to be comparatively similar during the two years. Net profit also decreased in the year 2013 and amounted to 2570.47 riyal, whereas in the year 2012, it was 6494.54. 2014 P & L Projection: All amounts are in Qatari riyal Profit and loss statement projected on 1.1.2014     Revenue 3000000 Cost of goods sold 205000 Gross Profit 4007000 Maintenance cost 50000 Cost of marketing 20000 Starting cost 300000 Cost of overhead 20000 Net profit 7602000 It transpires from the above statement that the company will gain 76, 02,000 riyal as net profit at the end of the year 2014. Gross profit of the organization will be 4007000 riyal, and the total Starting cost in the year will be 300000 Riyal. The company will earn 3000000 riyal as revenue for the year. “Costs” (Odean, 1998, p. 1775) include the costs of all purchases, costs of change and other costs that are incurred in bringing the stocks to their present condition. It will include “labour cost” (Kathawala, Zhang & Shao, 2005) material, and other overheads. The Cost of goods sold for the company totals to 205000 riyal. Conclusion: The modern business world is ever-changing, therefore, it is very important for Mercedes Cars Company to be very proactive and the company must monitor all different activities in Doha market. The organization must be very clear about their objectives. It is very important for the organization to maintain all rules and regulations created by the local government. Doha automobile market is very competitive, and the existing players are well experienced and popular. Thus, the organization has to be very much creative and innovative in nature, since Mercedes has chosen a new venture creation in place of taking over. All the above financial statements indicate that the decision will be favourable for the company to start up new venture in Doha market. The proposed net profit of the company in the year 2014 is 7602000 riyal, which will increase in the year 2015 to 9562000 riyal, as per the projection statements. The decision of the company to start a new business will provide them profitability according to the various analyses that has been conducted. It is recommended to the company to procure its building and equipments on lease agreement, so that the company can make changes easily. It provides better flexibility, as the agreement will be for a few years, and if the business seems to incur a loss, the the company can cancel the agreement and choose another option. Reference List Clampitt, P. (2007). Crisis management plan in action [PowerPoint Slides]. Retrieved from http://www.slideshare.net/Nostrad/project-3898042?next_slideshow=1 Dijck, Pitou. and Gerrit Faber. Developing Countries and the Doha Development Agenda of the WTO. New York: Routledge. 2006. Print. Hanif, Mohammed. Modern Acc. Vol I, 2E. New Delhi: ata McGraw-Hill Educatio. 2000. Print. Interim Report Q1 2013. (2013). Retrieved from http://www.daimler.com/Projects/c2c/channel/documents/2312729_Daimler_Q1_2013_Interim_Report.pdf Irawati, Dessy. Knowledge Transfer in the Automobile Industry: Global-Local Production Networks (Google eBook). New York: Routledge. 2011. Print. Kapan, T. & Minoiu, C. (2013). Balance Sheet Strength and Bank Lending During the Global Financial Crisis. Retrieved from https://www.imf.org/external/pubs/ft/wp/2013/wp13102.pdf Kathawala, Y., Zhang, R. & Shao, J. (2005). Global outsourcing and its impacts on organisations: Problems and issues. International Journal Services Operations Management, 1(2), 185-202. http://www.ux1.eiu.edu/~cfyak/Articles/global%20outsourcing.pdf Khasanah, U., Salim, U., Triyuwono, I. & Irianto, G. (2013). The practice of profit and loss sharing system for rice farmers in east java, Indonesia. IOSR Journal of Business and Management (IOSR-JBM), 9(3), 01-07. http://www.iosrjournals.org/iosr-jbm/full-issue/vol9-issue3.pdf Odean, T. (1998). Are investors reluctant to realize their losses?. The Journal of Finance, LIII(5), 1775-1798. http://faculty.haas.berkeley.edu/odean/Papers%20current%20versions/AreInvestorsReluctant.pdf Peck, Malcolm. The A to Z of the Gulf Arab States. London: Scarecrow Press. 2010. Print. Plunkett, Jack. Plunkett's Automobile Industry Almanac 2008: Automobile, Truck and Specialty Vehicle Industry Market Research, Statistics, Trends and Leading Companies. Houston: Plunkett Research, Ltd.2007. Print. Spurga, Ronald. Balance Sheet Basics: Financial Management for Nonfinancial Managers. New York: Penguin. 2004. Print. Read More