Marketing Forecast and Budget - Report Example

Marketing Forecast and Budget Student’s Name Course Instructor Date Introduction SKW Stahl-Metallurgies is the world-leading provider of desulphurization and secondary metallurgy solutions. The group is seen as the global market leader in the development and production of industrial cored wire with special chemicals for the manufacture of high-grade steel. The SKW Metallurgies Group also deal in magnesium and calcium carbide that play an essential part in raw iron desulphurization, as well as in Quab special chemicals for the starch industry (paper production) and other purposes.Notwithstanding Quab, SKW Metallurgies customers include producers of high-grade steel to be used in the automotive industry, in shipbuilding and mechanical engineering, in construction of installations for the chemical and petrochemical industries as well as in the manufacture of household appliances.The SKW Metallurgies Group consists of the three business segments “Cored Wire,” “Powders and Granules” and “Other” (operative activity: “Quab”). Opportunities & Strength: The company has been in steel industry for over 50 years It has a wide product base Has entered many deals with financial institutions which has boosted its financial status Threats & Weaknesses: Very exposed to the current economic crisis Environmental challenges when it comes to marketing Proposed Product/Service The service of focus in this particular section is one of the core services of the company. This paper will be focusing on cored wire that is being offered into the new market. This company has been one of the leading firms offering high quality services in relation to desulphurization. The aim of the whole process of desulphurization of steel is to remove the negative effect of sulphur on steel. The negative effect of sulphur on steel lowers the quality of the metal. In this regard, formation of oxi-sulphuric additions is the most recommended globular formula. The success of metallurgy desulphurization requires sodium carbonate and lime. Many other inclusions are used in the entire process whose composition varies depending on the quality of steel output expected. The company has invested heavily in hot metal desulphurization. In offering this product to its customers, the company uses its own raw materials. These raw materials include calcium carbide and magnesium. The company is cost-conscious and therefore imports these raw materials from Asian countries. The cored wire is one of the core products of the company. The company’s decision to venture into new markets all over the world is very critical in 21st Century. As many countries strive to meet their industrialization goals, the need for steel remains on the top list (Cullen, Allwood & Bambach 2012, p.13048). I appreciate the fact that there has been a slight fall in demand of steel in the recent past. This was greatly accredited to the economic crisis that faced most of the European countries. This short-term fallouts cannot change the long-term prospects of steel industry. Since the company was able to spot these future prospects early enough, many plans are underway to venture into a number of new markets. The company is strategically positioning itself as the solution in relation to supplying cored wire. With regard to this, the company plans to build its plants in Russia, Brazil, India and Mexico. This is aimed at tapping into the new and challenging market. This are not the only markets that SKW Metallurgie plans to venture into. The company looks forward to investing mostly in the third world countries in order to tap into the amazing future opportunities. Nevertheless, in relation to this paper our main focus will be the company’s venture into Russian market. Rationale for my Choice From the two main categories of services that the company offers, desulphurization sounds like the major driver of this company. In terms of products, cored wire is seen as the key product. Even as the company rushes to position itself, the strategy is being built upon the efficiency and potential therein in this service. This product is the major determiner of the success of this company. Most of the furnaces and plants that have built in most of the branches all over the world have been set specifically to exploit the overwhelming opportunities. This move is aimed at boosting the financial performance of the company in a huge way. It follows the company’s commitment and assurance to shareholders that it will stand strong in every situation in order to ensure the goals are achieved. The company is very cognizant of the shifting of demand from the traditional European countries, Canada and United States of America to emerging economies like India, Mexico and Brazil (Morrison 2001, p.15). It is estimated that these emerging economies have the potential to contribute about a third of all revenues in the future. Therefore, the expansionary plans that have been planned are meant to meet the overwhelming potential market. This is the reason the company has been very committed to diversification of products. It is aimed at attracting as many customers as much as possible (Malhotra & Birks 2006, p.59). When one analyses these statistics in relation to the products offered, the key product to participate fundamentally in the development of the company is the cored wire. Therefore, the selection of cored wire as a key driver in the expansionary program of the company is very timely. The financial statement of the company as at 2011 showed that the product was doing quite well. From the consolidated income statement, the revenue of cored wire was 202,117,000. The product is projected to perform pretty well in the new markets. During the previous year, the revenue for cored wire was 183,303,000. This represents an increase of 10.3%. If the projection of the Chief Finance Officer is something to go by, then the revenues in the new market is supposed to grow by more than 10.3%. In forecasting sales, there a number of variables that must be available. For instance the market share of this company can provide important information in setting sales forecasts (Wallace & Stahl 2002, p.112). Some more statistics indicates that during the IPO, the world market share of cored wired was 34%. This was in the year 2005. The market share is likely to be higher than that some years after the IPO. Regardless of the effect of the economic crisis of 2011, the company projects that the global economy will continue growing. Therefore, the demand for steel in the world is anticipated to grow even more. In the new market, one of the fears includes the high operating costs. These are the ones likely to have a negative impact on the adoption and growth of cored wire in Russia. If the company estimates 1/3 of the sales in the future to come from emerging economies, then we can estimate the sales of cored wire as follows:  If it’s estimated to grow at a rate more than 10.3%, then we can assume at least 12.5% This gives: 67,372,000x1.125 = 75,793,500 Therefore, the estimated sales for cored wire = 75,793,000 When it comes to overall costs, they are anticipated to be very high. The operating costs are already feared to be very high. Since this is a new market, obviously the fixed costs will be very high. Costs are approximated to be over 85% of the total sales revenue. This translates to: 85%x75, 793,000=64,424,050 Out of these costs incurred, the fixed costs account for the largest share: 70%x64, 424,050=45,096,835 Sales revenue 67,372,000 Total costs 64,424,050 Profit 2,947,950 Breakeven point: Is the point where sales cover only fixed and variable costs. The profit made is therefore zero. Sales = variable costs + fixed costs + profit The market price of cored wire per unit is $10 while its unit cost is estimated to be $8 on the higher side. BEP =  BEP =  BEP =  BEP = 22,548,418 units Returns on Investment: Estimated Initial Investment is 58,959,000 ROI =  ROI =  5% Fall-back strategy is the best way a business entity can be prepared for any misfortune that is likely to take place (Collins 2000, p.63). It is important to lay a plan of retreat in case an investment has failed completely. The fall-back strategy will be implemented when specific predetermined indicators have been noticed. For instance, if the company fails to attain breakeven point within a reasonable period like 3-4 years, the company must be prepared to take contingency measures to salvage the situation (Baack & Harris 2012, p.120). The operations in charge must be very sensitive to the changes in the market environment and other factors that are likely to have an impact on the performance of the business. The aim is to ensure that the company does not pull out of the market when it is has already incurred too much costs. Recommendation The new market in Russia sounds very attractive not only to this company, but to many other dealers in steel as well. The company needs to take every step towards expanding its stake in Russia with a lot of caution. We have already found out that the investment in Russia is likely to land on a rocky ground for the first years of its trading (McDaniel & Gates 2009, p.145). The challenges are related to almost all companies trading in the new environment. One of the challenges is financial constraints (Mandelsohn 2000, p.190). The company must be well prepared to ensure it thrives in the new environment. This is based on the financial needs that was analysed in the forecasts section. One thing that proved to be very costly was initial fixed costs. The same scenario is applicable to operating costs for the first two years. Therefore, the company has a responsibility of ensuring enough financial resources are set out to drive this particular project. In order for these recommendations to be fruitful, the co-operation of all stakeholders is paramount. The support of shareholders is required for financial and other kinds of support. At the same time, the other stakeholders with the likes of creditors and lending institutions must also provide their support. Failure for these critical stakeholders to provide their support may be very unfortunate. This is because the management cannot discharge their duties effectively without the support of these stakeholders. The management require the goodwill of the owners of the company for them to excel. Conclusions The potential of the company is truly overwhelming. There is no doubt that if all is executed as projected, it will yield good returns for the company. The industry of steel is one of the most promising industries in 21st century. The best this company can do to position itself appropriately in order to harvest these opportunities. It had been noted by the management and the directors of the company that the market for steel is slowly shifting from the European countries to emerging economies like Mexico and Brazil. This kind of information is so crucial in every segment of decision making in this particular company. The company ought to be appropriately prepared to invest in various sectors of the company in order to achieve its strategic goals. One of the requirements is the investment in human assets. The company must have brilliant and innovative employees in order to make these projections realizable. 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