Small Business Appraisal - Assignment Example

Small Business Appraisal Table of Contents Introduction: 2 Critical appraisal of the business & its management 3 Understanding of small business and factors influencing it 6 Business Growth and Future Prospects 8 Conclusion & Recommendation 10 Referencing 13 Introduction: The Indian economy is a growing at the rate of about 8%, and it is slowly transforming from an agriculture/manufacturing based economy to a services driven economy. This shift has also coincided with a rapidly growing urban economy of India. The services sector, more specifically the food and services retailing sector has seen explosive growth in India over the last one decade. Major international food and beverages brands like KFC, McDonalds and Pizza Hut have a strong presence in India and are experiencing extremely high growth rates. However, there have been a number of Indian start ups in the domain, with quite a few bigger Indian business houses too throwing their hat in the fray. One of the most prominent start ups in foods and services retailing domain is Lite Bite Foods (LBF). LBF operates in the high growth segment of Quick Dining Restaurants (QDR) and Quick Restaurants (QR). It was founded by a group of High Networth Individuals and industry professionals, and has been funded by an Institutional Venture Capital firm. The firm has entered into strategic tie ups with a number of well known food brands, and is presently in the roll out phase. As per the company website, it already about half million square feet of retailing space under is management and is aggressively looking at adding more space. This small business was started to cater the need for fast food in Indian population. In the given project, the business as well as management of the business will be discussed after undertaking the theory of small business and entrepreneurship. After that the business growth and future prospect of the company will be discussed and finally after drawing conclusion some recommendation will be provided. Critical appraisal of the business & its management The concept of entrepreneurship is age old because in history there were ample of example that provides evidence for existence of trade and commerce in early era (Cassis & Minoglou, 2005). These entrepreneurs were responsible for developing small businesses which were started by a single person, later on other family members like sons, relatives and friends might join with the owner which results in increase in the size of business. Many famous multinational business of today had started as a small business by a single owner. These examples act as motivations for millions of people to start their own small business. Even today the small business plays a vital role in gross domestic production in developed countries like US. As per a report published in September 2010, the multinational companies in US buy goods and services from more than 6,000 American small businesses that amount to $3 billion. This represents approximately 24 percent of the total buying done in US. Thus, these small enterprises are important partners of the US multinational companies. The government policies of US are also concerned for development of small business in America. As for example, the resent agreement of $ 1 billion for increasing new export by US firms will boost demand for goods and services and this will benefit the SMEs. As per the data, the small businesses are responsible for 99.7 percent that is $29.6 million business in US during 2008. Almost 49.6 percent of total payroll employment done in US is offered by small business. The young small business are important for creating new jobs as small business within the age of two years are accounted for creating 25 percent of new jobs in last few years (Business Roundtable, 2010, p.1-2). Not just in developed nations, even in emerging nations, the small businesses are important for the economy like China and India. There are several factors that influence small business growth in these markets. Among these factors, socio-economic condition, availability of finance, government policies, cultural and ethical framework are the vital one (Ruef, 2009, p.23). However, the rate of failure is comparatively high among the small enterprises. After undertaking the data collected from 1966 onwards, it has been found that prevailing rate of failure is as high as 80 percent in developing nation (Temtime & Pansiri, 2004, p.18). In India, the fast food industry is growing at a faster rate. As per current statistics “India’s fast food industry is growing at 40% per annum and generates over Rs. 4800 crores in sales” (Shanker, 2010). Several multinational companies are targeting Indian fast food industry to expand the business. International brands like Pizza Hut witnessed a strong growth in the revenue generated in Indian market in spite of strong competition from Domino’s Pizza. During 2009, KFC in India had 55 stores in 12 cities (Rohit, 2009). Such growth figures are influencing SMEs to target the fast food industry in India. Lite Bite is a small fast food company operating in Capital of India. The mission statement of the company is to cater growing need of Indian people. It offers fast food of in-house concept as well as international brands. Special attention is on the “great taste, nutrition, quality, hygiene, consistency and customer delight” (Lite Bite, 2008). This business was started with an aim to offer healthy fast food to the Indian people. With increasing influence of western couture in India, people started accepting the living style followed in the developed nations. The small business in fast food industry in India is a by-product of changing socio-economic and cultural factors. Thus the charm for fast food increased in Indian consumers. Other economical factors like growing purchasing power and growth in per capita income is also reasonable for growing charm for fast food. Apart from the economic factor, social as well as cultural factors also play a dominant role in success of this business. In India, the working class is left with less time to prepare for their breakfast and lunch at home. Hence they have to rely on ready to eat food stuff that can be easily available, have good taste and the nutritive value is also high. They find burgers, sandwiches, pasta etc as a good option of traditional home made food. It’s true that there are several international brands that offer such fast food but on regular basis people prefer to eat from the nearby restaurants as they offer the stuff at comparatively low cost with almost good quality. The success of this small business highly depends on the quality possessed by its management. Bite Lite is run by a bunch of corporate people who possess the entrepreneurship quality. The promoter of the company is Amit Burman. He is a Vice Chairman of Dabur, a well known Indian health food brand. The Co-promoter is Mr. Rohit Aggarwal, Director of Shree Bharat International Ltd. He is also associated with Lana India as Director as well as board member of a water brand owned by Himalaya known (Mount Everest Mineral Water Ltd). Co-promoter and CEO of Lite Bite, Tejpavan Singh Gandhok (Pavan) has a partnership role in several private equity and strategy consulting firms like Halcyon, AT Kearney, Stern Stewart & co. and Boston Consulting Group. Lite Bite also has an equity partner, PVR; Ajay Bijli is the chairman & Managing Director of this private equity firm (Lite Bite, 2008). All these people are young and energetic. They used their innovative and creative thinking to design a business to cater growing demand in the fast food industry. These people developed a business model that can be started with comparatively low capital and has a sound profit margin. They captured locations like shopping mall, airport, theatres and colleges were number of footfall is high. These are the places where the youngsters come to have some good time with friends. They prefer not to invest much on food; hence instead of visiting some famous restaurant, they use to purchase food from fast food outlets. The outlets keep low profit margin and rely more on cost leadership to gain competitive position in the fast food industry. Apart from the youngster, the business people also rely more on the fast food to match with their fast moving life style. These outlets are good places for them to fulfil their need. Therefore, it can be concluded that the management of this SME possess required characteristic of an entrepreneur. The theory associated small business and entrepreneurship will be discussed in detail below. Understanding of small business and factors influencing it While discussing the definition of small and medium sized organisation one has to take into account the international parameters to define it. These parameters vary from one country to another. Considering the socio-economic change, these parameters are updates to match with the existing condition. As per the international standard set in 1985, the parameters are the total capital invested should not be more than $2.5 million and the number of employees (permanent) should be less than 200 (Bank of Montreal, 1985, p.34). Apart from these parameters, a SME should be operating in the local market and its operation should be comparatively small in the industry (Longenecker, 2008, p.6). Therefore, it is quite difficult to provide a well defined definition that can use for all the industries operating in a nation. There are several factors that influences an owner to start his/her own business with limited amount of capital in small scale. Among them the economic condition is one of the dominating one. In courtiers where availability of capital for starting a business at large scale is not available, people prefer to start a small business with limited capital. This minimises the entry barrier associated with arrangement of capital. Apart from the economic condition, government’s policies also need to be taken into consideration. Government of a nation can motivate people to start up small business by providing seed capital in form of long term loans at low rate. In many counties the government provide relaxation on tax rate and disabuse loans to SMEs at comparatively lower rates. Just availability of finance or low tax rate is not enough to start a small business until and unless people have the required knowledge regarding the industry, the production process and legal formalities required (Carroll & Buchholtz, 2008, p.456-457). To provide all such required information, government arranges training program on time to time basis. In developing nations, the government make investment to develop business zone were the small and medium enterprises can get basic infrastructure (such as land, building, power, water supply, raw material etc) at comparatively subsidies rate. If required the government assist the SMEs in marketing their product to the target customers. In this way these small business get a change to make their product available to a large customer base. In countries like China, the government take special interest so that the SMEs can export their goods in international market. Apart from these external factors, internal factors such as emotional stability of the owner, education, past experience, innovative and creative thinking, risk taking ability and the desire to be one’s own boss also influences success of a small business (Casson & Buckley, 2010, p.36). Business Growth and Future Prospects The growth prospects of any industry are directly related to the macro economic factors associated with a geographical area. Lite Bite Foods runs its operations in India which is one of the fastest growing economies of the world with an annual GDP growth rate of approximately 8.3 percent as of 2010. The GDP in terms of purchasing power parity stands at 4.046 trillion US dollars (CIA, 2011). All these signify large scale opportunities for organizations like Lite Bite foods. The large scale economic growth has also enhanced the disposable income of the individuals. This is important for organizations like Lite Bite foods whose business prospects largely depend on the disposable income of the individuals of the nation. In addition to this the government of the nation also pursues investor friendly policies which are largely helpful for business organizations to grow and prosper in the business markets. The government of the nation is committed towards producing a good business environment for business organizations. The large scale production by the agricultural sector also represents widespread opportunities for food and beverage firms. A recent report published by RNCOS also states that the food and beverage market in India is likely to witness a northward trend with an annual growth rate of approximately 7.5 percent till the year 2013. The value of this industry is expected to be valued at 330 billion US dollars by the year 2013. An independent study conducted by KPMG expects the value of the India food and beverage industry to reach 150 billion US dollars by the year 2015. The report also pegs the Indian food and beverage market to grow by approximately 25 percent on a yearly basis. The beverage industry also paints a rosy picture for business organizations. The beverage industry comprising non-alcoholic beverages is expected to grow at 15 percent during the period of 2009-2012. The growth rate is expected to be in the range of 30 percent during the corresponding period. The lucrative nature of this market has prompted numerous multinational organizations to set up shops in the nation. Major food retailers like Mc Donald’s, Dominos, and Pizza Hut have not only set up shop in the nation but have also lined up major expansion plan in the nation over the forthcoming years (IBEF, 2011). The analysis of the macro economic factors reveals considerable potential of the Indian food and beverage market. In addition India also has a large agro based industry that produces raw materials for the food and beverage industry. The nation is stated to be the second largest producer of food items which represents greater advantage for food and agro based organizations (Mott Mc Donald, n.d., and p.1). The presence of indigenous industries for sourcing and procuring raw materials also generates advantages for organizations engaged in the food and beverage industries. All these aspects point out favourable conditions for Lite Bite foods to expand in the nation. The firm presently operates in the national capital region of India comprising Delhi, Noida, Gurgaon, Faridabad and Ghaziabad regions. In addition to this the firm can also expand to other major Indian cities like Kolkata, Mumbai, and Bangalore etc which also have high market potential. This strategy would be in tune with the company’s mission to operate more than 150-200 outlets in the nation (Lite Bite Foods-a, 2008). The company has its outlets only in select upmarket locations which have high volumes of traffic. There are a large number of upcoming malls and other such areas where the company can find growth prospects. The growth prospects of a firm also depend upon the micro environmental factors associated with an organization. Lite Bite Foods is presently owned by a number of highly qualified and talented individuals who have the ability to expand the business successfully. Human resources also play a major role in the success of an organization as they are the greatest assets of any organization. Business prospects and sustainability depends to a large extent on the presence of talented employees in an organization. India has a presence of talented workforce which can help the firm to achieve its long term prospects in the business markets. Competition is one aspect that needs to be taken care by the organization as the Indian market is characterised by the presence of numerous large and small firms who are engaged in the food and beverage industry. These players comprise both national as well as international brands. Hence positioning is one aspect that must be given considerable importance by the firm while planning its future business projects. Price is also an aspect that has a large scale impact on the consumer behaviour of the Indian consumers. The firm must also pay considerable attention towards this aspect while formulating its future growth strategies in order to generate long term strategic advantage for the organization. Conclusion & Recommendation The analysis of the macro and micro environmental aspects of the firm reveals large scale opportunities for the firm to grow and prosper in the future. The macro economic scenario of the Indian market shows considerable scope for business growth. This has been largely fuelled by the large scale growth of the Indian economy which is one of the fastest growing economies of the world. The growth of the economy in turn has fuelled the growth of disposable income of the individuals which is one of the most important aspects that defines the growth and long term sustainability of the firms having business interests in the food and beverage industry. The analysis of the Indian food and beverage market also shows large scale competition, this is one aspect that demands considerable attention from the strategists of the organizations with regards to framing future plans for expansion and growth. In order to seek a healthy growth and profit margin for the organization the firm must consider certain points which have been stated below. These points have been drawn on the basis of the analysis of the macro and micro environmental factors and the other sections of the study. Firstly, the firm must resort to expand to other cities in India which offer a good market potential. The firm must consider strategies like franchising in order to expand into other cities in the nation. Secondly, promotional aspects also need to be taken care so as to ensure better positioning of the brand image of the outlets in the minds of the consumers. Suppliers also play a major role in the success of any organization. The firm can resort to better means of procurement which also includes backward integration. The large agricultural sector of the Indian economy would help the firm in this regard. Service quality standards must also be taken to international standards so as to take care of the competition from the other market players. Finally financial resource management is a major area that needs to be handled by the firm while undertaking expansionary measures. The firm can register itself the Over the Counter Exchange of India which would enable it to generate financial resources from the primary market so as to raise resources to fuel its expansionary strategies. Adopting these strategies would not only help the firm to expand successfully but would also provide long term sustainable competitive advantage to the firm in the Indian market. Referencing Bank of Montreal. 1985. Journal of Small Business and Entrepreneurship. Canadian Council for Small Business & Entrepreneurship. Business Roundtable. September 13, 2010. [Online]. America’s Economic Challenge: Boosting Economic Growth and Job Creation. Mutual Benefits, Shared Growth: Small and Large Companies Working Together. [Online]. Available at: http://businessroundtable.org/studies-and-reports/mutual-benefits-shared-growth-small-and-large-companies-working-togeth/ [Accessed on January 15, 2011]. Cassis, Y. & Minoglou, I. P. 2005. Entrepreneurship in Theory and History. 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