A Critical Examination of Business Set up Opportunities in the USA from a Company Perspective - Case Study Example

Running Head: Business Opportunity in USA A Critical Examination of Business Set Up Opportunities in USA from A Company Perspective Insert Insert Grade Course Insert Tutor’s Name 23 February 2012 A Critical Examination of Business Set Up Opportunities in USA from A Company Perspective Introduction A number of forces drive organizations into expanding their operations to the foreign markets. Increased competition in the local and foreign markets as well as reduced trade barriers are some of the factors (Yip, 1989). The international business environment is quite dynamic and a business organization that has to survive in its international operations has to respond to the changes. The strategic business planning to manage this dynamics involves an examination of the bargaining power of the buyers, the bargaining power of the suppliers, the magnitude of rivalry, the other product or service substitutes, or the threats of other new entries into the market. The vending business is not a new practice in the United States, the first machine of this kind being developed as early as the late nineteenth century (Bellis, 2012). The changing patterns are observed in the quality and types of products offered as well as improvement in the vending machines to ensure security and efficiency. Most recently, there have been shifts towards high capacity vending machines that can vend healthy juices, yoghurt, fresh fruits, or vegetables (Franchise Solutions, 2010). Investment in the healthy vending machine can be incredible in the contemporary society if proper strategic planning and management is carried out (Vending Man, 2011b). The vending machine business is quite appealing to many individuals in the contemporary markets. The business has several associated benefits to the investor. It is characterized by immediate cash flows, all-cash business (no debts or accounts receivable), can operate 24 hours a day everyday, and it needs little expertise in business management or sales and marketing (1.800 Vending Inc, 2012). The clients in this industry require quick service and ‘demand immediate result making fast food too slow. [The] vending machines provide an affordable quick snack’ (Vending Man, 2011b). The clients give more value to healthy vending that produces healthy foods and with no negative long-term effects on the health of the clients. The business is a fun industry that can generate high returns with little investment since it requires few employees (Vending Man, 2011a). An individual can supply and manage millions of these machines at different locations with the little task of putting in food occasionally, after every few weeks. This report focuses on these opportunities and the establishment strategy for vending machine business in the US market. The socio-political and economic factors in the US market as well as the business strategy to be employed in this business are illustrated. The US market- Environmental analysis The factors external to our organization like laws and regulations in another country, the country’s economic profile, national culture, and market competition affect the decision to establish business in the country (Mead, 2005). Economic analysis The United States is among the countries that suffered the financial crisis and the resulting economic problems that have been experienced globally (Jickling, 2010). Nonetheless, the Federal Reserve and other government agencies like the US Treasury have shown relentless efforts to restore the situation through improving the financial systems (Marshall, 2009). It is then likely that the buying ability of the US citizens will be improved giving hope for a new business opportunity. Socio-cultural influence The socio-cultural factors in the country also favor the investment in food industry with focus on healthy eating habits. The consumption of soft drinks has been high in the United States in the past and yet these foods have negative impacts on the consumer heath (Jacobson, 1999). The soft drinks add unnecessary calories to the diet and replaces foods such as milk or fruits that are highly nutritious (Jacobson & Brownell, 2000). There has been increased consumer knowledge among the clients about the nutritional values and health implication of given food products in the recent past. By the end of the twentieth century, the US citizens had begun to adopt healthy eating habits (Kennedy et al, 1999) and the trend has continued into this century. The need for quick service also attracts people to systems that are more automated as compared to services in the restaurants and other retail stores. Political and legal factors The US government is keen in regulating business operations within its borders and across the borders through development of different monetary and fiscal policies. The country signed membership agreement for the World Trade Organizations (WTO) in 1995 (World Trade Organization, 2012). Thus, the global trade rules apply in the country. The government and other key business stakeholders have seen the need to have cooperation between businesses, the private sector, and the government itself (Robinson, 2012). The positive effect can be achieved through government policies that ensure balanced regulation, taxes, trade, energy, and education on the citizens (Robinson, 2012). Some of the recent business policies in the US favor the vending business. Section 179 of the US Internal Revenue Code provides that, in 2012, the purchaser of a new vending machine is likely to receive a tax deduction for the initial investment capital amounting up to $125,000 (1.800 Vending Inc, 2012). There are other possible tax deductions and advantages to the investors. The investor in the industry may enjoy tax deductions in operating/maintaining the equipment as well as deductions on expenses incurred in generating and collecting revenues (1.800 Vending Inc, 2012). The US Department of Health and Human Services also has a section, the Food and Drug Administration (FDA), that regulates the quality of products consumed in the country (Berger & Berger, 2012). The agency ensures that the products meet the stipulated standards thereby assuring the citizens of their safe use of the product. However, conflicts have arisen between some of the recent provisions of the agency and the interests of the consumers, especially in the food industry (MacKay, 2011). Some consumers feel that they should be allowed to make decisions as to what to consume. Competitors It has to be noted that there are several players in the US beverage industry each appealing to the client. The trade in the NAFTA region and the increased domestic production of fruit juices has contributed to availability of wide selection of fruit juices (Thor & Savitry, n.d). The US beverage industry has recently shown increasing efforts to promote beverages as opposed to snacks and soft drinks on health grounds (Thor & Savitry, n.d). The products are offered in hotel, restaurants, beaches, and resort. Attention is yet to shift to vending in the fruit juice industry. Thus, little competition is expected in the vending sector. Consumers Foods are necessities in human life with almost no substitutes. Individuals of nearly all ages are consumers in this industry. Nonetheless, the availability of several players in the industry increases the buyer bargaining power. Quick availability and improved efficiency in accessing the products will help in attracting and retaining the clients. Risk management strategy- Recommendations With the above circumstances prevailing in the United States, it would be profitable to establish a vending machine business dealing in healthy snacks and fruit juices. In doing this, it is necessary to purchase the modern vending machines that have desirable capabilities even though they seem quite expensive as compared to the older machines. The machines have a number of benefits. Firstly, the modern vending machines can be used to vend healthy foods like juices, snacks, yoghurts, and many others that are attracting increasing demand. Secondly, the modern designs as well as the innovative services have made the vending machines unique in some way. The technological developments enable the modern vending machines to produce snacks of higher quality than the earlier machines (Vending Man, 2011b). Unlike the traditional cut and dry boxes, some of the modern machines have TVs on the side of the display of snacks (Vending Man, 2011c). The moving picture is sufficient to attract the attention of any individual entering the building in which the machine is installed. Similarly, unlike the traditional cash-only systems, the modern machines to be used accept other means of payment. The machines accept credit/debit cards as well as cash payments. The modern technology has also enabled an effective design so that it is just impossible to lose money due to faulty dispenser (Vending Man, 2011a). Before establishing the business, it is also necessary to identify the target customers and the convenient locations. Location is the most important factor to consider in the vending machine business (Mathias, 2011; Gumballs.com, 2012). The choice of location will depend on the targeted customers. The appropriate locations for installing vending machines include shopping malls, busy street corners, banks, hospitals, restaurants, outside gymnasiums, inside learning institutions, or movie theaters among many others (Mathias, 2011; Gumballs.com, 2012). This business should target adults and busy centers like entrance of shopping mall or learning institution is appropriate. To establish the business, the organization has to apply a model comparable to franchising. The machines will be installed within or next to premises of other individuals or organizations and some formal agreement is necessary. For a start, it is necessary to install two or three machines, watch their performance for some time, and expand as necessary. After establishment, the organization has to apply some marketing and sales promotion practices to inform the clients of the new service. The targeted consumers are always reluctant to adventure a new product or service until they hear reviews about the products or until they see some individual purchasing the product (Vending Man, 2011c). To attract the attention of passersby, the attendants of the machine (during their first days of installation) should act as though they are purchasing a product from the machine. The individuals passing by will get to know that the machine is operational and perhaps plan too use it the next time. The marketing plan Products In the contemporary society, almost any fast moving consumer product can be sold through the vending machine (Mathias, 2011). Cold coffee, hot-dogs, pizzas, hot coffee, soft drinks, cigarettes, or gum are common products. Nonetheless, the trend in the food industry is currently moving towards healthy eating patterns. Thus, the organization has opted to invest in fruit juices. The major focus is on healthy foods, less additives. The organization will carry out some research among the other investors on the renowned vending machine manufacturers for this particular product to avoid purchasing faulty machines. Prices The fruit juices are available in bottles of 20oz. A bottle will be sold for $2.0. This is rather competitive since the other ordinary soft drinks and juices are sold at the same range despite of their negative health implications. Locations Three different locations have been identified for the installation of the first three machines, all in the state of California, USA. These are the University of Maryland, Laurel Glen Shopping Center California and the Esperanza shopping center. Depending on the observed success in the market, the business will be expanded to other regions in the US market. There is need for mutual understanding with the owner of the business or the management of the institution. To have a better deal, the organization will have a written agreement with the other party on terms of operations. The management of these organizations or institutions will accord the necessary support if they are given some stake in the investment. As such, the agreement will specify the terms of nominal share of the profits from the investment. Promotions There is a need to put an advertisement of the new machine that has been introduced into a given business location or institution. Firstly, the machines will be located in the strategic locations such as the entrants or exit of the shopping mall, or the gate of the learning premises. Similarly, the organization will coordinate with the other party in advertisement of the vending machine through flyers and posters. The TV screen on the modern machines will also aid in attracting the attention of the clients. In the advertisement, the management will appeal to the clients on issues like healthy snacks or affordability. Initial Budget The costs of each of the three high capacity modern vending machines are $5,000 including the installation costs. The Bottle Drop vending machines have a capacity of 290 20oz bottles. The cost of preparing of 20 ounces of the fruit juice is estimated to be about $0.60 including the raw materials. There is no need for hiring of employees for this business operation since the machine is automated. However, the management will hire temporary attendants for the first month of operation. The average wage for each attendant for the month is $500 and $450 for internal advertisements. There is also expected electricity bill of about $40 for the units in a month. This is summarized below. Table.1 Initial budget for establishing the vending machine business Item No of units Cost of a unit ($) Total cost ($) Vending machines 3 5000 15000 Bottles of fruit juice 290*3=870 0.60 522 Temporary attendants 3 500 1500 Electricity bill (first month) 3 40 120 Promotion/advertisement 3 150 450 Total 17592 Reference List Bellis, M., 2012. The History of Vending Machines: Did you know that holy water was once vended? (Online). Available at: http://inventors.about.com/od/uvstartinventions/a/vending.htm [Accessed February 23, 2012]. Berger, M., & Berger, B., 2012. FDA Overview. (Online). Available at: http://www.emedicinehealth.com/fda_overview/article_em.htm [Accessed February 23, 2012]. Franchise Solutions. 2010. Sprout Healthy Vending. (Online). Available at: http://www.businessopportunityamerica.com/business-opportunities/Sprout-Healthy-Vending.cfm [Accessed February 23, 2012]. Gumballs.com. 2012. How to Start a Vending Machine Business or Route. (Online). 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(Online). Available at: http://cnas.tamu.edu/publications/powerpoint/papers/thor.pdf [Accessed February 23, 2012]. Vending Man. 2011a. Modern Vending Machines: The Treasure Chest. (Online). Available at: http://www.start-a-vending-machine-business.com/modern-vending-machines-part-2-golden-ticket-start-vending-machine-business/ [Accessed February 23, 2012] Vending Man. 2011b. Franchise Opportunities: Start A Vending Machine Business. (Online). Available at: http://www.start-a-vending-machine-business.com/franchise-opportunities-start-vending-machine-business/ [Accessed February 23, 2012]. Vending Man. 2011c. Starting A Vending Machine Business. (Online). Available at: http://www.start-a-vending-machine-business.com/3-easy-steps-grow-starting-vending-machine-business/ [Accessed February 23, 2012]. Yip, G., 1989. Global Strategy…. In a World of Nations? Sloan Management Review, 29. (Online). 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