The Required Information to the Prospective Investors: Masters in Business Administration - Essay Example

Global Strategy Introduction The degree called Masters in Business Administration (MBA) is as popular as ever, even in this highly unpredictable market. Looking at the growing popularity of this field of study, it has been decided to set up a business school which would have the ability to offer a course of international standard. However, this is not the only reason behind opening up Global School of Business Management (GSBM). It rather endeavours to open up a new horizon in the field of management studies. In most of the schools, education is confined to the ‘bookish knowledge’, rather than extending it to the ‘experience’, or real life application of gathered knowledge. This business school will offer the students the highest level of education with intensive emphasis on practical application of gathered knowledge. However, setting up this business would demand a considerable amount of capital investment. This report aims to offer the required information to the prospective investors. The information would include analysis of financial as well as business environment. The prospective investors are supposed to be those investors who are somehow related to ‘education businesses’. MBAs having a considerable amount of corporate experience would also be approached to make investment in this business set up. These two kinds of investors are expected to have the required interest in setting up of this business school. The Opportunities It cannot be denied that a large number of MBA business schools already exits in UK, Australia and India. However, with the same, adverse thoughts have emerged that MBA studies are getting confined to the book itself. It has failed to prove itself in the application domain. In such a situation, the need for a business school with global presence and excellent education model which not only looks into the acquisition of knowledge but emphasises on practical application is of paramount importance. The business school would make collaboration with the leading business schools across the world. It is quite difficult to get a ticket to these leading MBA schools. However, Global School of Business Management aims to offer enhanced and at par education to the prospective MBA students. The MBA School is expected to set its corporate office at London and later on, the set up would be extended to further locations such as Australia and India. With the growth of business, GSBM has a plan to expand further. As the recession period is over now; the job markets are gradually opening up which is a good sign for the MBA aspirants. Apart from this, many are looking forward to set up their own businesses, which again require the necessary expertise offered by an MBA program. So the demand for MBA studies is expected to rise higher. As a consequence, the opportunities for business seem to be brighter in the future. Competitive Edge of the Business There are some competitive advantages existing in this business set up. The basis of the competitive advantage often lies in the resources and abilities that an organisation has (Ehmke, 2008). The advantageous resources are discussed in the following parts. First of all, the business will be set up with a bunch of MBA graduates, passed out from premier B-schools. This can be capitalised while advertising for the business school. At the same time, being an MBA means that the initiators of this business have the required expertise to carry on this business. Adding to it, one of the initiators is attached with a business school for the last 5 years, which is going to be a significant advantage. The B-school will operate with the coordination from the leading b-schools across the world. Adding to it, it will recruit globally to have the required human resource on board. Adding to it, as each of the owners is from premier B-schools with considerable years of experience in their respective fields, they will have a good relationship with a number of organisations in the market. So, GSBM would be able to assist the students with their job placement. Capitalising on this fact can give GSBM a competitive edge over its competitors. The infrastructure of this MBA School will be at par with the modern architecture, offering students the required technological and educational environment. In today’s competitive era, the role of information technology cannot be denied. GSBM will have the required technological advancement to make the students accustomed to the same. The business school will be at the heart of London and professors from the premier B-schools worldwide would be hired to teach in this college. This would be easier as GSBM has a global presence and is operated in coordination with the leading B-schools across the globe. All these factors are supposed to emerge as competitive advantage for the new set up. Porter’s Five Force Analysis Porter’s analysis is an effective management tools for analysing the competitive level of an industry. Porter has identified five forces that intensify competition within an industry. The five forces are bargaining power of suppliers and customers, threat of substitute, rival and new entrants (Marcus, 2006, p.23). The following figure represents the Porter’s five forces of industry. Figure 1: Porter’s Five Forces (Source: The College of St. Scholastica, 2009) Before opening a new business school, the Global School of Business Management (GSBM) must analysis the industry forces. These five forces of MBA market are discussed below. Bargaining power of suppliers For establishing an MBA institute, necessary academic resources are required like furniture, computers. The teachers and professors of MBA institute is one the most important resource for a business school. The academic furniture market in UK, Australia and India is quite developed. A large number of such suppliers are available in the market. Technological service providers are also very important for this industry. The communication infrastructure of these three countries is quite advanced. Therefore, the bargaining power of the suppliers is mild in MBA market. Bargaining power of Customers The main customers of the MBA markets are the student and working people. In UK, Australia and India, the availability of MBA aspiring students is very high. Globally, the demand of the MBA degree is increasing at a higher speed and it helps to popularize the MBA market. “MBA demand in Western markets is forecast to increase only slightly year on year, and these big jumps in demand are concentrated in emerging markets” (Quacquarelli, 2010). Threat of Substitute A wide range of substitutes are available for the MBA courses. However, it depends on the social, cultural and demographic character of a particular market. The growth of international business and trade is a major determinant of MBA courses as it recruits people with enriched managerial skills. India is developing nation with growing industries and it will require many MBA students. Therefore, the threat of substitute in MBA market is moderate. Threat of New Entrants The entry and exit barriers in MBA market are quite low. The investments in business school include the land, building and other necessary resources. Many organisations can open its business by leasing these resources. In this case, the investment for business becomes very low. High profitability of this industry attracts many new organisations and most of engineering colleges also are entering the MBA market as they have sufficient established resources necessary for running MBA institutes. For example, University of Kentucky -College of Engineering of UK also offers MBA degrees (University of Kentucky-College of Engineering, 2010). The above discussion indicates that the threat of entrances in MBA market is very high. Threat for the Existing Rival The market of UK, Australia and India is very competitive as this industry is crowded with many business schools. The leading business school of these countries has made its brand image among the potential customers and hence, the advertisement expenses are very low. They have gained an upper hand position in the market that has intensified the competition among the small and new business school. The Strategies GSMB is aiming to open its business schools in UK, Australia and India, and for the success of its business, it must implement proper strategy for each country. In this respect, the Porter’s generic strategy is an important tool for drafting core business strategy. GSBM must realise the social and cultural structure of these companies for formulating strategies. According to Porter, “the concept of generic strategies also has implications for the role of culture in competitive success”(Porter, 1998, p.24). The following figure shows the model of generic strategy. Figure 2: Generic Strategies (Source: Lowy and Hood, 2004, p.140) The above figure shows fours types of core strategy that helps to penetrate a new market. GSBM will follow different set of generic strategy for each country. The probable strategy for each country is given below. United Kingdom The business school of UK are very structured as many students from different regions pursue MBA courses. The UK market is dominating the European business landscape. The business school of UK provides standard management educations and students available for the MBA courses have better economic condition to afford course fees. The students in UK come from different European and Middle East countries. The students from China, Singapore and Korea are also very prominent. These students seek high standard of education. Therefore, GSBM must follow mixed generic strategies for the UK market and it must target the overseas students. The business schools in UK follow a particular business model which is given below. Figure 3: Business Strategy Model (Source: Thomas, 2007) Australia Australia is one of the fastest emerging markets for business schools. Many students are coming to these countries from different areas. The Australian higher education industry receives large numbers of overseas students. The GSBM must focus on these particular groups of students. The Australian Government’s policies encourage overseas students to pursue higher studies in Australia by approving scholarships (Study in Australia, 2010) Students from India, China, Japan, Middle Europe and Latin America will be the major target customers of GSBM. Therefore, it must follow the focused strategy for the Australian business school. However, the Australian business schools provides high quality of education and hence, GSBM will follow the best industry practises for management education. For ensuring sustainability, GSBM will concentrate on its infrastructure, faculty, academic resources and it will also follow the local government’s regulations. India As compared to Australia and UK, the market structure of higher education is quite different in India. For example, in India, most of the leading and managements business schools allow the fresher students without any industrial experience to pursue MBA degree. This is one of the main reasons for large availability of students. The numbers of overseas student are negligible in India. Very few numbers of students come from Pakistan, Bangladesh and Nepal. However, availability of Indian student is sufficient for earning revenues. Considering the economic conditions of India, GSBM will follow low cost strategy in India. GSBM will keep a lower fee structure as compared to the leading business schools. It must collaborate with banks for availing education loans for MBA course. Cost Benefit Analysis Cost benefit analysis is very important for any new venture as it determines the optimum utilization of financial resources. The primary objective of this analysis is “to assess the financial viability of the proposed project, i.e. if the proposed project is financially attractive or not from the entity’s viewpoint” (The University of Texas at Austin, 2009). GSBM will lease the necessary land for establishing the building for business school. The table shows estimated set up cost of business. Table 1: Financial Projection of GSBM The above table shows the set up costs for the new business schools in India, Australia and UK. In order to avoid risk, GSBM will lease land for the first initial years. However, depending on stability, the company is planning to buy a piece of land in these countries. The total investment cost in these three countries will be around £4375000 and total profit from the three countries will be £925000. Therefore, the initial return on capital will be around 21%. GSBM will aim to increase the student capacity by taking into consideration the prevailing market scenario. The company will apply for the accreditation from the respected educational authority of these countries. Risk & Risk Management Any new setup has to face certain financial as well as business risks. The new set of business schools is not an exception to it. As of now, the business risk of this new setup is estimated to be quite low. The three destinations have enough number of MBA aspirants who can be assumed as the prospective students of this MBA School. The establishment is expected to face certain financial risks (Giddy, n.d.). For instance, as the organisation will have its operation worldwide, GSBM can experience currency risk in its operation (Allen, 2003). Apart from that, GSBM will invest in some funds to offer their investors a higher return on their investment. In this way, the enterprise can experience interest rate risk in its investments (Horcher, 2005). Currency futures and interest rate swaps would be used to hedge these kinds of risks (Dun & Bradstreet, 2006). The establishment will have a dedicated risk management committee to offer them a higher return at a minimum risk level. Exit is Possible An educational establishment does not have to invest in large and heavy machineries. The only considerable investment is made in the development of architectural and technological infrastructure. This infrastructure can be used for any other business in future. Even the selling value of this property will be higher in the coming years. As a consequence, exit from this business would not have much impact on the investors. The assets used in the process can be used further for another business set up. Conclusion Education has always been necessary for mankind. Entering the education sector does not only involve carrying out social responsibilities, the organisation should also ensure that the business is socially as well as economically profitable. Education has been one of the promising fields of investment. The analysis has revealed that business will be profitable enough to give the investors a considerable return on their investment. Qualified and experienced human resource is going to be of competitive advantage for this institute. Moreover, collaboration with the leading business schools with give it an extra edge over its competitors. Although there would be challenges and risks in business, the establishment is ready to face them and convert them into strengths and opportunities. There would be obstacles in its path; however the owners of this business are ready to face the challenges with grace. Reference Allen, S. 2003. Financial risk management: a practitioner's guide to managing market and credit risk. John Wiley & Sons. Dun & Bardstreet. 2006. Financial Risk Management. Mc-Graw Hill. Ehmke, C. 2008. Strategies for Competitive Advantage. [Pdf]. Available at: http://ag.arizona.edu/arec/wemc/nichemarkets/05competitiveadvantage.pdf [Accessed on November 04, 2010]. Giddy, L. 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