The Emerging Economic Regions - Essay Example

Introduction The potential growth of the emerging economic regions (Goodall, and Ashworth, and hospitality industry are collectively attractingmore entrepreneurs. The reason cited for according to (WEO, 2015), is the fall in oil prices giving cost advantage. PwC, 2015 reports the global economic growth forecasts as depicted below. Despite fact that the developing countries are enjoying economic growth, developed countries are still in the process of recovery from 2008 shock. UK is a $2.2 trillion GDP country with 3.7 times higher GDP per capita and 63 million people with 92% employment rate (Find The Data, 2015). Resultantly, UK is considered as fruitful economy for businesses due its supporting business environment. The country is also attracting FDI for numerous sectors including food and beverages (Institute of Foreign Economy, NDRC, 2014). Also, According to PWC (2015), Europe including UK attracted around 22 million more tourists in 2014 than 2013. Cardiff Bay, the mining valley holds the status of world’ first industrialized city (Cardiff Caerdydd, N.d) and 10th largest UK city but remained underprivileged for centuries due to ignorance by authorities. With this scenario at affect, role of SME’s increase massively in Cardiff Bay as the economy is then dependent on small and medium enterprises. The last two decades witnessed the adventurous growth events and developments in the Cardiff Bay region. As reported, from 1000 registered buildings 547 are of food businesses including bar, café and restaurants in Cardiff Bay (Ruddick, 2012). Hence, role of hospitality industry is wide in SME in Cardiff Bay region. Hence, with these factors at affect the paper reviews the challenges and issues that starting a new venture of restaurant in Cardiff Bay will be faced with. Importance of Business Planning Honig and Samuelsson, (2011) empirically researched the effectiveness of planning and discussed the factors and viability of planning to enter in a business. Different factors in Cardiff Bay contribute in the importance of business planning. The potential population growth and changing lifestyle are promising measures for services business industry in the region (Cardiff Caerdydd, N.d). Cardiff Bay attracts around 18 million visitors a year till 2012. Though, the region still needs huge reforms but critics have positive anticipations. The lack in connectivity, infrastructure and funding measures, increasing unemployment rates and strong ethnic values that cannot be easily changed all also factors that must be considered before developing business plan. Considering the economic outlook of the Cardiff-bay region and the capabilities of a sole-proprietorship novel business, the proposed business is planned to be low-cost entity. Hrebiniak, (2013) suggested that a business strategy should be chosen according to its demand in terms of resources and capabilities (See Appendix 2). The rationale for choosing the low-cost business strategy is that the region is in infancy phase of growth; high ethnic values with average income level will not be attracted by a high-end food entity. Further, tourism is showing potential growth but mostly leisure entities serve tourists and infrastructure limits tourists to stick to limited area. High statistics about the business failure rate also contributes in importance of business planning. Statistic Brain, (2015) reported that almost 25% of the businesses face failure in the first year of launch. The percentage reached to around 44% within three years. Delmar and Shane, (2003) argued that the business planning enables evaluation of available options in achieve business goals and reduces the chances of failures. Food related service industries are highly exposed to many inherent and environmental risks in the current era of competitive markets and the over challenging economic scenario (Epstein, and Buhovac, 2014). It is also reported that from around 90% of restaurants, 60% fail in the beginning three years while the number rises to 75% till five years (B.O’Dell Consulting, 2009). Furthermore, the restaurant industry of UK is also facing challenges of survival for the businesses with a reported CAGR of -2.2% for 2010 to 2015 (IBIS World, 2014). Hence, all these factors contributes in highlighting the role of business planning in order to reduce the risk of failure. Moreover, it also enables the business in effectively meeting the demands of the target customers. Risk Factors Assessment Considering the above notion it can be inferred that planning business is crucial for developing a successful business venture. Factors that must be assessed while planning a new entity in terms of internal and external factors that can lead business towards failure. Simply elaborated, it can be considered that internal and external risks factors should be assessed while planning a business. Aligning with the theoretical implications below presented as an assessment of factors that can affect the viability of underlying planned entity. Hospitality business refers to an entity aimed to provide one or more relaxing services to the guests (Brotherton, 2012). Specifically focusing on UK, eating out industry worth Euro 40billion (PwC, 2015) with the promising growth of different categories of restaurant (Hotel News Resource, 2015). Full and quick services restaurant growth for 2015 is forecasted up to 3.4% and 3.7% respectively (Technonic, 2014). The restaurant industry adds value to the UK economy with around 35,032 business, 590,915 employees and value of £26.7billion in 2014 (IBIS World, 2014 and Department of Environment Food and Rural Affairs, 2014). The industry also witnessed an increase in distribution index on an average 1.3% with 4.7% increased outcome for 2014 (ONS, 2014 and Office of National Statistics, 2015). Despite the growth numbers, Key Notes Ltd, (2013) suggests that the category is in a retrieval stage after the crises restaurant industry faced in 2009. However, there are multiple risks associated with the initiation and survival in the category. Key Notes Ltd, (2013) further presented the promising forecasted growth of the industry of around 8.5% till 2017. Hence, all these factors increases the risk of challenges for planned entity. Infancy of entrepreneur’s experience and business, UK and industry’s economic scenario, Cardiff Bay’s administrative conditions, and overall macro environmental factors possess the ability to throw multiple challenges as depicted below: (Parsa, et al., 2005) Challenges Regarding Entrepreneurial Capabilities First and the foremost there is a set of challenges that arises when a new entity starts (Thomas, Lorange, and Sheth, 2013). Majors issues are are specifically related to the capabilities in dealing with the hygiene and health factors. It is also a technical factor for the entrepreneur itself, skills and abilities to develop, launch and maintain an entity (Malik, Willett, and Hu, 2013). Highlighting the characteristics includes determination, obsession, risk tolerance, flexibility and motivation; Longenecker, et al., (2013) suggested that reasons of failure of an entrepreneur are: Overestimation of both opportunity and capabilities can become a strong risk for the entity that ultimately leads to failures. History reported that many of the promising launched entities’ failed due to the operational inefficiency of management of those firms (Barberá, et al. 2012). The entrepreneur must be capable of managing the business with an open mind for accepting uncertainties, flexible needs of business and value workforce. The most important considerations of an entrepreneur should be a bit extra gathering of market data and trends and critical analysis of that information for taking the initiative. Challenges for Starting a New Business The issues defined above were solely related to the cause-effect attributes of the entrepreneur and team’s capability. Assuming that entrepreneur effectively planned the entity with cautious detailed analysis for rationale of the moves, there is always a possibility that she faces issues during establishment procedure of the entity. (CCH, 2009) suggested that starting a new business take up many issues including: Business structure development Structural development for business needs high understanding of chosen industry and specialized skills for designing the physical and operational infrastructure of the business. Lack in the measure can result in disastrous waste of resources and failure of business. Funding business Usually new business requires high funding and most of the viable conceptual plans are never completed due to lack of funding. Due high importance of the said measure, the phenomenon is elaborated later in detail. Issues regarding administer the business A newly starting business entity faces many viable administrative issues that highly reduces the attraction of a sighted opportunity. For instance in a very beginning of the procedure, business needs a firm knowledge and operational capability for filing the legal applications and business analysis plan. Legalities issues Legalities in terms governmental implications, regulations, lawsuits, tax matters and other environmental and administrative implications challenges business at every stage of business cycle. Organizational Life-Cycle Restaurants like other business entities go through certain stages of organizational- life cycle (Parsa, et al., 2005). By default, every life stage inherits some risks of failure that are higher in the beginning stage due to many important concerns. Further, restaurant business is vulnerable to the only single unpleasant or an uncertain incident to be closed or engaged in lawsuits due to the nature of business. Challenges embedded in UK National Economic Scenario The most important issues in starting a new restaurant business in UK are summerized below. The detailed review of said measures is presented in the appendix 1. Political Higher competition in hospitality substitute is challenging the measures by government such as tourism policies and tax cuts. Economic VAT, other tax measures, and price hike are affecting the industry Social Increased unemployment, lower disposable income, and changing preferences are considerable issues Technology Creating a need for the technological presence Internet as well as providing the delivery services are important. Legal Government laws, EU regulations and Wales’s law enforcements are also considerable. Environmental “Green” obligations, health, hygiene and safety concerns. Challenges embedded in Cardiff Bay Economic Scenario In additon to UK economic climate, Cardiff Bay’s economic scenario is also important for the prospect business in many aspects as being the primary location of said business, (Cardiff Caerdydd, N.d). These aspects are discussed in below section: There is still lack of transit systems. It is a big issue for the business with a huge workforce. It can also cause daily in supply chain management and attracting wider audiences. Understanding cultural values is crucial as the region is in phase developing business environment. Koellinger and Thurik, (2012) entrepreneur cycle is affected by unemployment. Worsen unemployment conditions and lowered disposable income levels developed a bit harsh economic climate for the businesses in the region after downturn of 2008. There are funding problems in the region. The urbanization measures are not still considered by Wales’ administration can either slower or inverse the prospect economic growth of the city. It will take time to be considered widely as growth opportunity for attracting businesses and expatriates. Massive population growth rate should be controlled for taking out the country from poverty level. The challenge is to cater the local market with ethnic taste and preferences while risk of failure in doing so is high if expertise of technical staff is not regionally aligned. Hygiene Rating Act 2013 Wales defines standards for the said industry and maintaining that standards in such type of industry raise higher challenges for novel businesses. Challenges embedded in Competitive Landscape Huge chains with heritage of centuries and a numerous local, mid and small players are the part of giant industry with a number of 35, 032 registered businesses. Key Notes, (2013) indicates the fierce competition level of the industry which in turn lowers attraction of industry for entry. In addition to competitive pressures from large players, there will higher threat of substitute from home-made and ready-to-eat products. Inflation factor indicates higher bargaining power of buyers in terms of switching to lower cost substitutes. Suppliers, on the other hand, possess moderate power. Thus, the competition level of the industry lowered the attraction to entry as measured below on 1=low to 5=high scale. The scenario indicates higher challenges and only a well-planned resource savvy business can survive in the environment. Specifically a deeper market analysis seems critical of novel region(market) is required. As described above, Cardiff Bay is in the beginning stages of reformation and growth thus enjoying opportunities of consumers’ changing preferences. All this limits the planning of effective business. Further, technically sound people with a related educational, tactical and experienced background is the initial need for the business, as well as dexterity of top management about the business rudiments, is important. Lack of these traits can aggravate challenges. Moreover, the business should be started with a balanced capability and opportunity match otherwise the risk will increase (Longenecker, et al., 2013Top of Form Bottom of Form ). Above scenario highlights the need of a sound competitive strategy to start the venture successfully via exploiting competitive edge in the market. Need for a competitive strategy Considering the internal and external factors discussed above in terms of capabilities and market potential along with the deeper review of risks associated, it is found that the planned opportunity possess potential of success but need a strong competitive strategy to be built for the purpose of gaining competitive advantage over market and mitigate the collective risks associated with the business. As reported above the proposed business is planned with the low-cost competing strategy due to considering the environmental scenario and competition level of the underlying territory Cardiff Bay. The rationale for proposing low-cost strategy below as competitive edge is the alignment of underlying conditions with the theoretical implications by Williams, (2010). (See Apendix 3) Cardiff Bay’s local population is more into sticking with ethnic values and there are extremely low sources of market information for Cardiff-bay region, thus going for high-value strategy via differentiated product increases the chances of business failure. Entrepreneur is new in the field, balancing of resources and capabilities as well as specialization of operational activities is required. Commoditized product would be feasible as expert labor would be easily available. In a scenario, where funding a new business is difficult, low-cost strategy sounds better as it aid businesses reduce operational costs, allow to exploit full working capacity as and lower starting costs.. There is evidence of increased tourism in the region but poor connectivity to the world and infrastructure weaknesses are also reported which suggests that business will have to find a local target market. This scenario aid low-cost business as per socio-economic strata of the region, which goes for cost comparisons and low prices. Financing the business – access to finance CCH, (2009) suggested that starting a new business take up many issues including funding for the business. Usually, very small businesses start up with 100% equity to avoid associated lawsuit in case of inability to pay-off. However, in the current scenario the business is of high worth and need a comparatively heavy funding. There is a need for funding the business via investment agencies. The risk of unavailability of funding is higher for the business as reported that Cardiff Bay is facing challenges in funding the businesses and also in attracting FDI (Cardiff Caerdydd, N.d ). According to Cardiff Caerdydd, (N.d), a higher operational cost is the reason that is not allowing region to attract the inward investment. This is despite the fact that the UK is attracting FDI via policy relaxation and support. Further, recession and absence of solid grounds for forecasted growth are not convincing funding authorities to invest in the new businesses in Cardiff-Bay. Finally, the presented industry wise business success rate depicted below also leads to questions raised by financier for financing the business: (Statistic Brain, 2015) The situation can create a challenge of funding for the novel business. Finally, Honig and Karlsson, (2004) claimed that business plans are important for new organization however does not guarantee profits. This in turn also raises the question in the acceptability of the business plan by financiers. Conclusions The growtrh of the said industry in UK and the potential of proposed location Cardif Bay highlights the potential of entity to be successuful. However, the risks are also high. Critically evaluation concluded that a strong counter competitive strategy with the right balanceof rsources and capabilities would be beneficial for the entreprreneur. After a comperehensive strategic analysis, managerial implications found in term of mitigating strategies for associated risks are presented below. Opportunity sounds fruitfull if exploited cautiously. Almost 90% of the resaturant businesses failed due to inefficent planning. Specific consideration for legal obligations. Long way to go for Cardiff-Bay’s sustainably growth. There is a need of competitive strategy to plan the entity. Ethnic preferences, lower connectivity and infrastructure issues and income level highly favors low-cost undifferentiated products. Financing the business would be very difficult in the region. There will be operationl challenges in terms of managing workforce as business relates to a service industry where skilled workforce is a competitive edge. Appendix 1 Explanation of UK economic Scenario Legal Measures . In general, registration, minimum wages implications and VAT (PwC, 2015) and tax regulations are putting businesses in high operational cost scenario (Centre for Retail Research Website, (n.d.). Further, as reported “the Affordable care act” of 2010 largely impact on the restaurant businesses due intensive induction of employees as being a service industry (National Restaurant Association, 2014). Safety and Hygiene Regulations The food industry has higher concerns for the regulatory authorities due to health concerns of consumers. A number of local, regional, governmental and official authorities of EU impose implications for the purpose as depicted below. (Hutter, and Amodu, 2009) Socio-Economic Scenario The post-recessionary inflation resulted in the price hike by18% inraw ingredients for food. Also, individual related categories witnessed a rise in between 22% to 57% for 2014. The impact in turn affected the purchasing power of consumers that declined significantly. Both in turn have implications (DEFRA, 2014). Consumer Preferences Consumer preferences has also changed and 88% people consider prices as first influence for purchasing food (DEFRA, 2014). Secondly, the growing concerns about safety, quality, health, diet and green impact are shaping the behaviors towards more consciousness (EY, 2014). Environmental Obligations Greenhouse implications on the businesses are highly discussed in today’s scenario. Along with CO2 emission, other implication for the food sector includes in urban food, HGV, and air food. Due to such implications, with the risks of subject to laws in many dimensions business is also subjected to health, safety and regulatory concerns of consumers. Portion Size Definition and Waste Control There is an organized structure in UK for waste management, which reveals high contribution in waste from restaurants in 2014. These wastes result either from the larger portion size, extra luxury added in plate or excessive orders placed (Department of Environment Food and Rural Affairs, 2014). Instead of following the market trends, business would need to offer more viable plates combination with extremely balanced portion size to create price for value image for the brand. Ethnic concerns and preferences Concerning with ethnic category as preferences of Cardiff Bay indicates, (Ford, 2015) indicated the lower percentage of people who find a price for value attainment via eating in ethnic restaurants. Secondly, he indicated that people think it better to order via internet instead of eating in the ethnic restaurant. This in turns create challenging scenery for the business to add facilities for internet ordering and delivery in business model in case of ethnic food category exploitation as dining in and takeaway facilities might be not enough to attract more audiences. 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