Nature Extracts Contribution towards Arab World Region - Research Paper Example

Nature Extract’s Contribution towards Arab World Region Table of Contents Table of Contents 1 2. Research aim 2 3. Research objective 2 4. Research problem 3 5. Hypothesis 3 6. Literature Review 4 6.1 Financing the initial set up cost 5 6.2 Employee management and remuneration 5 6.3 Marketing techniques 6 6.3.1 Choice of retailers 6 6.3.2 Choice of distribution channel 7 6.3.3 Project Life cycle 7 6.3.4 Project Network Diagram 8 6.3.5 Supply chain management 9 6.3.6 Inventory management 10 7. Data Collection 10 8. Results 10 8.1 Projection of sales, gross margin, net profit for 3 years 10 8.2 Projection of the estimated start up costs 11 Source: (Author’s creation) 12 8.3 Market Segmentation 12 Forecasted market development based on different segments 12 9. Conclusion 13 1. Introduction The Arab World is basking in the light of new freedom. The freedom has brought about a sea of change in the lives of the people. If this opportunity is not seized upon to do something extraordinary which uplifts the society, then the freedom gained is as good as freedom lost. The changes need to impact the society in a multiplier effect. The need for the hour is a new initiative. New initiatives taken by entrepreneurs will create the infrastructure that will provide employments to the millions. 2. Research aim The present research project details the plan which introduces nutritional products in the Arab World region as a part of the entrepreneurial initiative. 3. Research objective The idea is to introduce nutritional products which are completely based on herbal plants and shrubs. The whole process of manufacturing the raw materials, purchasing the raw materials, manufacturing the herbal based products and finally the distribution of the products are done among the Arab World countries. These processes could have been outsourced from the far eastern countries like India, Japan and China, but that would not lead to generation of employment in the Arab region. This research project lays out the plan of how to carry out the above processes and what problems are to be encountered. The objective is to cater the market segment that do not have access to the costly nutritional products of the premium brands and at same time create large scale employment opportunity in the Arab world region. 4. Research problem The name of the company that is taking the entrepreneurial initiative is Nature Extracts. The product lines chosen are general vitamins, products specific for sports and nutrition, protein supplements, and diet vitamins and medicines. The product lines are all herbal based (Acs 2003). The idea is to manufacture the herbs and shrubs and the medicinal plants in Egypt, Oman, and Libya, process or manufacture the semi-finished products in Egypt, pack them there and ship the products for distribution to regions like Qatar, UAE, Kuwait, Bahrain, and Saudi Arabia. The problem is that not all regions fit for growing the herbal and medicinal plants. Apart from that, there is a problem of transporting the raw materials to the plants for furthering processing. The choice of the right distributing partner and channel is another problem. The initiative to open herbal and medicinal plants is already in the direct competition with the more contemporary medicines and nutritional products (Baumol 1988). The herbal based nutritional and medicinal products are considered to be traditional medicines. So in certain Arab regions where there is considerable influx of aid provided by different international humanitarian groups like Red Cross and the WHO with modern non herbal based medicines, it will take more than just a sincere effort to make strong presence in the market. 5. Hypothesis The hypotheses are formed to negate the assumptions formed in the null hypothesis with appropriate reasoning and logics. The hypotheses are formed according to the importance of the factor. H0 is the null hypothesis and H1 is the alternative hypothesis 1. H0 = the capital needed cannot be sourced without recourse to huge debt financing H1 = the capital can be sourced without recourse to huge debt burden 2. H0 = the herbal plants cannot be reared in the arid areas of Egypt, Oman, Libya. H1= the herbal plants can be reared in the arid areas of Egypt, Oman, Libya 3. H0 = the raw materials cannot be transported to the processing plants without significant loss in medicinal value H1 = the raw materials can be transported to the processing plants without loss of medicinal value. 4. H0 = There may not be the right kind of distributors and channels to carry out the distribution of the products H1 = the present distributors can carry out the process of distribution very effectively 6. Literature Review The Arab World region consists of 23 separate regions. If Nature Extracts decide to enter the Arab World region market, then the target market will be chosen in such a way where the consumers have a high chance to experiment with new products (Vardhan 1986). This is because of the reason that except few regions most of the regions or the sub regions under the Arab World region are underdeveloped and impoverished. So the chance that the new products can receive a good recognition is very low. Qatar, UAE, Kuwait, Bahrain, and Saudi Arabia are the 5 regions chosen as the initial target market. The target markets are chosen depending upon the GDP of the regions. 6.1 Financing the initial set up cost The choice of the target market is the last of the entire problem. The first objective is gathering the required capital to set up the initial infrastructures. Since it is already mentioned in the research problem that the regions chosen for growing the herbal plants do not have suitable climate, special temperature controlled closures need to be built (Matusik 2009). Apart from that, it is estimated that the processing units must be capable enough to cater for nearly 3000 customers initially. So the cost of setting up the processing plant and temperature controlled plants adds up to 4 million dirham. Without the help of venture capitalists, it will not be possible to come up with such a large sum of money alone depending on debt financing (Swift 2011). The option is either to approach venture capitalists or to go for strategic alliance with a company that has already the technological knowhow and the backbone to support the supply and distribution operations. The venture capitalists or the strategic partners will be chosen from the Gulf areas, since the Gulf Areas are most affluent regions in the Arab Region. 6.2 Employee management and remuneration Since the whole process of procurement, processing and distribution is spread all across the region, the personnel management is very important operation for this entrepreneurial activity. It must be reminded that the very reason for which this entrepreneurial initiative is floated is to provide the millions of unemployed youth spread all across the region a chance to get employed, to earn livelihood, to continue education and support the families. It is estimated that the whole process would require around 700 employees for the first 3 months, and if the average production rate is able to increase by even 15%, then that would require additional 600 employees in a matter of 3 months. And if everything is going according to the planned expansion of increasing the production rate by 10% each months for a corresponding increase in the sales revenue by as much as 40%, then in a matter of one year there would be requirement of additional 1000 workers (Bhagat 2005). The remuneration will be decided according to the cost of the living of the regions from where the employees belong. For example, the employees from the Gulf Region are going to have a larger remuneration in comparison to the employees from the other regions like the Oman and Sudan. 6.3 Marketing techniques The marketing techniques include application of fully integrated branding, marketing and communication program. In the initial phase of branding, marketing and communicating programme will be manual driven. Later on, the manual system will be replaced with an enterprise wide software and driven customer relationship programme. 6.3.1 Choice of retailers The choices of the retailers are region specific. For example, depending on the demand of the products in the specific region, the retailers are chosen. Figure 1: Demand forecast for one year denoted as number of products Source: (author’s creation) 6.3.2 Choice of distribution channel The channel distributors will be chosen based on the specific region. Every region will have one nationalized distributor. Once the demands start to increase or there is positive response from the customers, the numbers of distributors will be increased. 6.3.3 Project Life cycle Figure 2: Project Life Cycle Source: (Kornish 180) 6.3.4 Project Network Diagram Figure 4: Project Life Cycle Source: (author’s creation) 6.3.5 Supply chain management Figure 5: Supply chain management Source: (author’s creation) 6.3.6 Inventory management Figure 6: Inventory management Source: (Bhagat 40) First in and out principle will be applied in sorting and storing of raw materials, the semi-finished and the finished products. Only FIFO principle is recommended in the inventory management process since the final products as well as the semi finished and the raw materials are perishable in nature. 7. Data Collection There will be mainly 3 kinds of data collected for the research project, which are data from the marketing department, data from the logistics department, data from the human resource department and data from the financial department. 8. Results 8.1 Projection of sales, gross margin, net profit for 3 years Fig 7: Projection of sales, gross margin, net profit for 3 years Source: (Author’s creation) 8.2 Projection of the estimated start up costs Fig 8: Projection of the estimated start up costs Source: (Author’s creation) 8.3 Market Segmentation Forecasted market development based on different segments Table 1: Forecasted market development based on different segments Market Analysis     Year 1 Year 2 Year 3 Year 4 Year 5   Potential Customers Growth rate           CAGR People within age group 20 to 30 2% 90 91 92 93 94 1.23% Multi brand retail shops 0% 77 77 77 77 77 0.00% Single brand retail shops 0% 55 55 55 55 55 0.00% Age group less than 20 and more than 14 0% 99 99 99 99 99 0.00% People within age group 40 to 60 3% 53 54 55 56 57 2.25% People within age group 30 to 40 2% 462 469 476 484 492 2.01% Direct sales force 0% 120 120 120 120 120 0.00% total 7.00% 956 965 974 984 994 5.49% Source: (Author’s creation) 9. Conclusion The choice of nutritional products as the prime product gives Nature Extracts a strategic advantage since there are hardly 2 to 3 brands that deal with the same kind of products. Apart from that the unique ability of Nature Extract to outsource every operation from different parts of the Arab region puts it in strategic advantage to reduce the cost of operations. The target market represents a broad continuum of customers of age group 14 to 60. Such a broad age group gives access to huge number of customers. The forecasted demands for the next three years indicate that the demand is set to increase by 15 % annually. With state of the art rearing facilities and processing facilities and a lean supply chain, Nature Extracts has the ability to be a successful entrepreneurial initiative set to provide employment opportunity to millions of people in the Arab World region. Work cited Acs, Zoltan J. Handbook of Entrepreneurship Research. Boston, Kluwer, 2003. 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