Doing Business: Measuring Business Regulations - Research Paper Example

Executive Summary UAE is one of the fastest growing countries of the world. There are large number of immigrants living in the country particularly from India, Pakistan and Bangladesh. The food industry of UAE has been growing at rate of 11% according to the research and it is expected to grow further as different investors are eyeing UAE as the place for investment. All these factors reflect that the growth of food industry of UAE. Almost 60% of the population of UAE is from South Asia and therefore there is an opportunity in the market by offering South Asian food in the market (National Bureau of Statistics, 2010). There are restaurants however the quality, taste and service of these restaurants are not up to the mark. And even if, there are good quality restaurants, then they charge too high prices therefore it becomes difficult for people to go to restaurants on a regular basis. These opportunities would allow the newly introduced restaurant, Hamara Khana to make a mark in the UAE food mark. Introduction United Arab Emirates (UAE) is one of the growing countries in the world particularly in the Middle East Region. Investors around the world have been evaluating the feasibility of investing in the country (Gimbel, 2007). There are several opportunities available for investors and for businesses. Because of advantageous business conditions in the country, UAE is considered as the 14th best country in the world to start a business according to the report published by World Bank (Economy Rankings, 2011). The lifestyle and living standard of UAE has improved over the years (Human Development Report, 2010). This report analyses the opportunities that are prevailing in the United Arab Emirates market for opening a new restaurant. Almost 60% of the total population of UAE comprises of South Asians which includes Pakistanis, Indians, Bangladeshis, Chinese, Thai etc (National Bureau of Statistics, 2010) and therefore this report identifies and evaluates the feasibility of opening a new South Asian Restaurant particular that offers foods to Pakistani and Indians as both are high in numbers in UAE. The name of the restaurant is ‘Hamara Khana’ which means Our Food in Hindi (National Language of India) and in Urdu (National Language of Pakistan). Although, there are few restaurants offering food for South Asians however the market still looks promising and therefore this report will analyse the feasibility of opening a small restaurant in UAE. Product or Service The idea of the business is to start a new restaurant, Hamara Khana. The restaurant would be offering dishes for South Asians particularly for large number of Pakistanis and Indians. The spice and style of food of Indians and Pakistanis are very much similar and therefore one restaurant would be able to fulfil their needs. Quality of service has an important role in any restaurant in attracting as well as in retaining customers (Kotler, and Armstrong, 2010) and this is the reason why Hamara Khana would focus on offering high quality service as well. Different dishes that are prepared by Pakistanis and Indians would be offered at Hamara Khana and some of the most prominent dishes would be categorised in the following categories: Biryani Qorma Steaks Karhaye Daal Chawal Bar BQ Sea Foods Sabzi (Vegetables) Curries (Veg, Non-Veg) Side dishes As the restaurant would also be offering sea food, therefore the company would be able to attract people from Bangladesh as well. In addition to the food that the Hamara Khana would be offering, the restaurant would try to provide a pleasant environment for people to have their food. The company would be training employees so that they treat the customers in a welcoming manner to improve the customer retention ratio. Technology Hamara Khana would be using the latest technologies and different ingredients that are available in the market to improve the quality of the taste of the food. In terms of technology, Hamara Khana would be utilising the latest equipments in cooking food so that the food is hygienic and of high quality. In addition to this, the restaurant would be making use of latest technology to market the products and services and to attract and retain customers. Market Environment The market for South Asian foods is growing as the number of Pakistanis and Indians are increasing. The population of United Arab Emirates are 8.26 million. Out of these, more than 60% are the south Asians living in the UAE. The main target market of Hamara Khana would include the Indians, Pakistanis and Bangladeshis that are living in UAE. These people have left their country for better employment opportunities and to earn more money than they could have at their home place. Therefore these people are looking for things that can fulfil their needs at more economical price and this is one of the reasons why Hamara Khana can be well suited for them. There are a large number of people from India and Pakistan in particular and therefore the offerings, environment, service and style of Hamara Khana would be very much similar to what they could have got in their home country. This would allow these immigrants living in UAE to enjoy and have the kind of food in UAE despite of being away from their home. Competition The competition in the industry is strong and there are several firms in the market offering similar kind of foods. Several restaurants from India and Pakistan are operating in UAE and therefore the competition level in the country is high particularly in the South Asian market. There are firms from Pakistan, India and Bangladesh like Karachi Darbar Ravi Sumibiya Coconut Grove Govinda’s Basta Art Cafe Afghan Kebab House Student Biryani Bombay Competitive Advantage: Hamara Khana would be having competitive advantage over different restaurants that are offering South Asian foods. Some of the main competitive advantages that Hamara Khana would be having are: Prices Prices is one of the most important and critical factors that could influence the success of the firm (Kotler Armstrong, Wong, and Saunders, 2008). The prices of the foods available in the UAE market is high and it is expensive for people to have food from different restaurants therefore it is difficult for people to go to restaurants on a regular basis. However, with the introduction of Hamara Khana in the UAE market, people would be able to go to restaurants on a regular basis as the restaurant would be offering food with relatively lower prices. Quality of Foods The quality of food available in the UAE market is not that high and therefore it lacks the traditional taste and spiciness of the South Asian foods. Therefore the South Asians in UAE are still not satisfied with what they are getting in return to what they are paying for. Industry analysis The value of the food industry in UAE is more than Dhs6.47bn and the growth rate of the industry in the year 2006 has been around 11%. According to research it has been found that the spending by the tourists would increase up to $7.6 billion in the year 2009 (AME Info, 2008). The increasing number of tourists and investors would play important part in improving the demand. Also changes in the lifestyles and demographic factors would play important role in improving the value of the food industry and this would improve the industry in future (Nair, 2011). With more singles coming to Dubai and other parts of UAE, the demand of readymade foods or restaurants are increasing (AME Info, 2008). Business Model Hamara Khana would be a traditional restaurant however it would be offering products for the South Asians particularly Pakistani, Indians and Bangladeshis. The restaurant would be trying to offer an environment where people could come in, get relaxed and enjoy. The look and feel of the restaurant would be more of a South Asian style of a restaurant so that people that are living outside their country would get a feeling of in their local restaurant rather than a restaurant in UAE. However, doing so, the management of the restaurant would be making sure that they offer high quality and hygienic food and quality service to make the customers satisfied. Market and Sales Strategy– Hamara Khana would be spending considerable budget on the marketing and sales in order to attract large number of customers. The restaurant would be not only making sure that it attracts new customers but it would be offering high quality products and service to retain the existing customers of the company. Details of the marketing strategies of the company have been discussed using marketing mix 4Ps. Product: The main product would include the traditional South Asian food that the restaurant would be offering. In addition to this, quality service would be one of the main products that the restaurant would be focusing. Also the management has planned to offer traditional taste by using different ingredients that are used by restaurants in South Asia. The foods that would be offered are mostly the ones that are liked by South Asians. The research has also identified that the quality of foods offered by other South Asian restaurants is not high and therefore it could be a competitive advantage for the company if they are able to offer a taste that is able to meet the needs and demands of South Asians in UAE. Price Hamara Khana would be offering food at relatively lower prices than the other restaurants in the UAE. One of the main reasons that South Asians living in UAE are not able to visit and go to the restaurants offering South Asian food is that the prices of the food is very high and even after paying high prices, they do get high quality food and taste in return. By keeping relatively low prices, Hamara Khana would be able to target most of the South Asians living in UAE. Place The restaurant would be placed in the main Dubai initially and after the success of the restaurant, Hamara Khana would be expanding its services in different parts of UAE so that most of the South Asians are able to have access to the restaurant and they can have the traditional food of South Asian style. Promotion Hamara Khana would be relying a lot on the promotional activities. The company will be preparing and devising promotional strategies so that the restaurant is able to create brand awareness and make the people in UAE know about the newly introduced traditional South Asian restaurant. The restaurant would be using different marketing channels to promote the restaurant. The company would be using following marketing channels to create brand awareness and promote the offerings of the restaurant: Billboards Flyers and Brochures Social media marketing Online marketing Search engine optimisation Video marketing TV advertisements Online banners on different websites All these marketing channels would allow the restaurant to target different people and therefore the message would be spread to more and more people and thus, it would attract more people to the restaurant. Production / Operation Requirements Hamara Khana would be preparing the food at the same place and therefore the restaurant would require a kitchen with all the equipments needed for a restaurant. In addition to this, the restaurant would require tables, chairs and kitchen equipments and utensils to prepare food. Management and Personnel Requirements Hamara Khana would be focusing and giving a lot of attention in training employees so that quality service is offered by the restaurant. The management would be experienced in managing a restaurant however people from Pakistan and India and other south Asian nations that are living in UAE would be hired so that a local South Asian environment is portrayed by the restaurant. In addition to this, the chefs would be trained to cook food in the South Asian style so that the expectations of the customers are met. Training has an important role in satisfying customers particularly in service industry (Lovelock, and Gummesson, 2004) and therefore Hamara Khana would be training its employees. Regulations / Environmental Issues There are several regulations including legal factors and environmental factors that are to be considered while starting a business in UAE and it is important for the management of Hamara Khana to keep these regulations in mind. The management would make sure that the preparing of food like Bar BQ dishes and others would not harm the environment and it would be prepared considering all the laws of UAE health and safety regulations. Critical Risk Factors There are different risks factors that Hamara Khana needs to consider while starting the business and these risks factors include: Financial Risk Market Risk Risk of capital Level of competition Growth of the industry Laws and regulations of the industry Financial projects The sales of the restaurant have been expected to grow by 25% each year. First year sales are expected to be 600,000 AED. Cost of goods sold is assumed to be 30% of the sales Marketing expense would increase b 12% each year Salaries would increase by 10% each year. There are two managers that are being paid 5,000 AED each month. 4 chefs would be paid 2000 AED and 4 waiters and customer service agents would be paid 1500 AED each month. Balance Sheet Projections Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Assets Cash 63,000 30,000 50,200 143,370 334,935 657,470 Fixed Assets 187,000 187,000 187,000 187,000 187,000 187,000 Accumulated Depreciation (18,700) (18,700) (18,700) (18,700) (18,700) Net Fixed Assets 168,300 149,600 130,900 112,200 93,500               Total Assets 250,000 198,300 199,800 274,270 447,135 750,970 Equity Share Capital 250,000 250,000 250,000 250,000 250,000 250,000 Retained Earnings - (51,700) (50,200) 24,270 197,135 500,970 Total equity 250,000 198,300 199,800 274,270 447,135 750,970 Total Liabilities & Equity 250,000 198,300 199,800 274,270 447,135 750,970 Income Statement Projections Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 600,000 750,000 937,500 1,171,875 1,464,844 COGS 180,000 225,000 281,250 351,563 439,453 Gross PROFIT 420,000 525,000 656,250 820,313 1,025,391 Expenses Marketing Expense* 50,000 60,000 72,000 86,400 103,680 Salaries expense** 288,000 316,800 348,480 383,328 421,661 Utilities expense 15,000 18,000 21,600 25,920 31,104 Rent expense 100,000 110,000 121,000 133,100 146,410 Depreciation expense 18,700 18,700 18,700 18,700 18,700 Total Expenses 471,700 523,500 581,780 647,448 721,555 Net Income (51,700) 1,500 74,470 172,865 303,836 Cash Flow Projections Year 1 Year 2 Year 3 Year 4 Year 5   Receipts           Cash sales 600,000 750,000 937,500 1,171,875 1,464,844 4,924,219 Cash from investors             Total Receipts 600,000 750,000 937,500 1,171,875 1,464,844 4,924,219               Payments             Salaries and wages 288,000 316,800 348,480 383,328 421,661 1,758,269 Cost of goods 180,000 225,000 281,250 351,563 439,453 1,477,266 Marketing/promotion 50,000 60,000 72,000 86,400 103,680 372,080 Utilities expense 15,000 18,000 21,600 25,920 31,104 111,624 Rent expense 100,000 110,000 121,000 133,100 146,410 610,510 Payment of equipment   4,000         Total Payments 633,000 729,800 844,330 980,311 1,142,308 4,329,748               Cash flow Surplus/Deficit (-) (33,000) 20,200 93,170 191,565 322,536 594,470               Opening Cash Balance 63,000 30,000 50,200 143,370 334,935                 Closing Cash Balance 30,000 50,200 143,370 334,935 657,470   Financial Ratios Year 1 Year 2 Year 3 Year 4 Year 5 Net Profit Margin (%) -8.62% 0.20% 7.94% 14.75% 20.74%           Net Profit -51,700 1,500 74,470 172,865 303,836 Sales 600,000 750,000 937,500 1,171,875 1,464,844           Return On Equity -26.07% 0.75% 27.15% 38.66% 40.46%             Net Profit -51,700 1,500 74,470 172,865 303,836 Average Equity 198,300 199,800 274,270 447,135 750,970             Return On Investment -26.07% 0.75% 27.15% 38.66% 40.46%             Net Profit -51,700 1,500 74,470 172,865 303,836 Total Investment 198,300 199,800 274,270 447,135 750,970             Total Asset Turnover Ratio 3.026 3.754 3.418 2.621 1.951           Sales 600,000 750,000 937,500 1,171,875 1,464,844 Average Total Assets 198,300 199,800 274,270 447,135 750,970           Equity Turnover 302.57% 375.38% 341.82% 262.09% 195.06%           Sales 600,000 750,000 937,500 1,171,875 1,464,844 Average Equity 198,300 199,800 274,270 447,135 750,970             Return on Assets -26.07% 0.75% 27.15% 38.66% 40.46%           Net Profit -51,700 1,500 74,470 172,865 303,836 Average Total Assets 198,300 199,800 274,270 447,135 750,970             Graphs Break even Analysis Break even analysis is the point where the company is able to cover its fixed cost (McLaney, 2009). Contribution margin is 70% as the variable cost is 30%. Therefore, the break even sales point for Hamara Khana is 673,857. This shows that the company needs to have 673,857 AED of revenue to achieve 0 profits. Company will be able to achieve its break even point just after its first year. Capital Requirements and Strategy Total capital required to start the business has been mentioned in the table below; Kitchen Equipment 50,000 Merchandising 5,000 Inventory 5,000 Furniture and renovation 100,000 Stores and Spares 2,000 Cash Requirement 25,000 Total 187,000 The business plan and feasibility report will be shown to different investors so that capital can be raised. Recommendations and Findings With the growth in the industry and potential in the market, it has been recommended that a new restaurant should be opened in the UAE market that could meet the needs of South Asians living in UAE. The industry has been showing growth and existing competitors are not able to target the market up to the level it could have and this creates an opportunity for Hamara Khana. Conclusion The industry analysis and market research says that there is a need for a new South Asian restaurant that could satisfy the needs of South Asians living in the country. The quality of food along with a traditional taste and environment if offered appropriately, then it could make the idea of Hamara Khana successful. References AME Info. (2008). UAEs quick service restaurants sector still open for growth. retrieved May 24, 2012 from http://www.ameinfo.com/149196.html Economy Rankings. (2010). Doing Business: Measuring Business Regulations. International Finance Corporation, retrieved May 24, 2012 from http://www.doingbusiness.org/rankings Gimbel, B. (2007). The richest city in the world. CNN Money, retrieved May 25, 2012 from http://money.cnn.com/magazines/fortune/fortune_archive/2007/03/19/8402357/index.htm Human Development Report. (2010). Human Development Index and its components. United Nations, retrieved May 28, 2012 from http://hdr.undp.org/en/media/HDR_2010_EN_Table1.pdf Kotler P., Armstrong, G.,Wong, V. and Saunders, J. (2008). Principles of Marketing (5th European Ed.) London: FT Prentice Hall Kotler, P, and Armstrong, G. (2010). Principles of Marketing. Upper Saddle River, New Jersey: Prentice Hall. Lovelock, C., and Gummesson, E. (2004). Whither Services Marketing? In Search of a New Paradigm and Fresh Perspectives. Journal of Service Research, 7 (1), 20 – 41. McLaney, E. (2009). Business Finance: Theory and Practice, New Jersey: Pearson Education. Nair, M. (2011). UAE restaurant business increase as more dine out. Gulf News, retrieved May 28, 2012 from http://gulfnews.com/business/retail/uae-restaurant-business-increase-as-more-dine-out-1.744056 National Bureau of Statistics. (2010). Methodology of estimating the population in UAE. United Arab Emirates, retrieved May 28, 2012 from http://www.uaestatistics.gov.ae/ReportPDF/Population%20Estimates%202006%20-%202010.pdf Read More