CIMA Competition

1
CIMA Competition

• Royal Grammar School, Guildford

Simon Briggs Jason Browne Amir Ouki Robert Young
2
Aims

• Provide a clear evaluation of the viability of
  the project
• Give advice on improving the productivity of the
  team
• Reach a final judgement about whether to launch
  the dMpcamera music player
• Reach a final judgement about whether to
  outsource production to China
• Suggest 3 new features for the dMpcamera
  music player

Project Areas

• Finance
• Marketing
• External factors
• Human Resources

3
Finance
Costs of Production

• Direct cost of production forms 40 as a
  percentage of revenue.

• Much larger effect than cutting costs in other
  areas.

• The team therefore has no choice but to outsource
  to China.

4
Finance

• Profit Margins
• The total predicted sales revenue for Year 1 is
  24,435,000
• Predicted gross profit is 4,887,000.
• Therefore the gross profit margin is
• 4,887,000/24,435,000 20
• The predicted net profit is 4,398,000
• Therefore the net profit margin is
• 4,398,000/24,435,000 18

5
Finance

• Return on Capital Employed
• The predicted net profit at the end of the first
  financial year is 4,398,000.
• The value of the capital employed is 19,548,000

The return on capital employed is 4,398,000/19,54
8,000 22

• Higher than the 15 required.

6
Finance
Discounted Cash Flow

• Discount rate of 15 is applied.

• The net present value of the revenue gathered
  over the 2 year period is 17,654,000.

• Discount rate is not of great importance to the
  team.

7
Finance
The predicted sales revenue for Year 1 is
24,435,000, covering the initial investment and
leaving a good profit .
The payback period should therefore be within the
2 year limit.
8
Marketing

• Almond must use the strength of their brand
  name to raise awareness
• Market research helps advertising plans
• A similar product has not had the same response
  as the Almond team would be hoping for their
  dMpcamera

9
Marketing

• Marketing budget of 3,000,000
• TV 500,000 (not including costs of advert
  production)
• Advertise on ITV
• 500,000 for 5 x 30 sec. and pre-packaged
  campaign
• Majority, however, will be spent on Internet
  advertising.
• Great possibility for internet advertising
• Much of this can be done for free

10
Marketing

• The advertising budget can comfortably allow for
  an extensive internet advertising
  campaign
• Advertising on Google costs on average 1000 per
  day.
• 5 such sites for 1 year would cost 1.8 million

11
Additional Features
After completing market research the team has
decided that the dMp camera should incorporate

• A touch screen.
• Wireless Bluetooth music and photo downloading
  capabilities.
• DAB digital radio.

12
External Factors
Overview
External factor areas

• External factors pose some problems for Almond.
• If we counter the problems, then we can benefit
  from our external environment.

• The Economy
• Competition
• Technological Factors
• Political Factors

13
External Factors
The Economy
Growth Rate forecast
- Growth Rates

• Economic growth projected above trend level
• 2.5 - 3
• Constant growth levels means a slowdown period is
  unlikely.
• This allows spending on luxury goods with a
  positive and elastic YED, like our digital music
  player, to increase disproportionately.

14
- Inflation Rates
External Factors
The Economy
Inflation Rate forecast

• Inflation remains close to the 2 target over the
  next two years
• Thus fairly constant interest rates are likely
• This supports consumer spending, as costs of
  credit and loans will not increase.

15
- Interest Rates
External Factors
The Economy
Interest Rate forecast

• Volatility of growth, inflation interest rates
  is low
• Therefore accurate long term projections can be
  established
• This reduces the likelihood of future volatility,
  reducing the risk of investment

16
External Factors
Chinese Yuans to 1 GBP
The Economy
- Exchange Rate

• Yuan exchange rate volatility could create an
  unfavourable CNY - GBP rate.
• However, this could be overcome by hedging.

17
External Factors
Competition

• Already strong market position, quality branding
  and recognition
• Almond has an excellent level of expertise and
  lower production costs from lower price inputs at
  bulk rate due to economy of scale
• Patents restricting competition may not be
  applicable because we are combining existing
  products

18
External Factors
Technological Factors

• Almond currently at the leading edge of
  technology
• Edge important to maintain quality to maintain
  brand image
• But, high quality player high capital set-up
  and production costs
• Increased risk of new products of this type
  becoming obsolete too quickly
• Therefore, the sales period may be too short to
  make a profit
• To counter this, move manufacturing base to
  China, reducing manufacturing costs

19
External Factors
Political Factors
Outsourcing to China

• There are significant advantages of outsourcing
• However, Almond has a responsibility not to
  exploit workers from LEDCs, thus risking bad
  press
• To avoid this - strict self-regulation on how
  Chinese factories are run
• - Health and Safety conditions
  should be above local standards

20
External Factors
Conclusion of External Factors
Threats
Opportunities
e.g. Exchange rate volatility
e.g. Find a niche market
Chinese Yuans to 1 GBP
Almond dominant in a niche market
- Overcome by Hedging
- Capitalise on to dominate market
Chance to expand market lead
21
Human Resources
Key point of agreement Project should go
ahead Key point of disagreement whether to
outsource to China
Margaret Jones
Jasmin Singh
22
Human Resources
Potential Solutions

• Team bonding
• Approach to Meeting
• Leadership Qualities and styles

23
SWOT Analysis
Strengths Market share. Low costs Price
Effective Advertising Agreement by team on
project continuing New and innovative product
Weaknesses HR conflicts over outsourcing
Layoffs. Cultural problems and language
barriers. Diseconomies of scale

• Opportunities Forecast of low economic
  volatility
• Increased GDP leading to increased demand
• Reduce risk by outsourcing.
• Quicker to release the dMpcamera.

Threats CNY volatility Patents not
applicable. Possibility of competition.
24
Conclusions and Recommendations
Richard Bakers can use leadership skills to
ensure the team works well together.
25
Conclusions and Recommendations

• Possible Problems with Outsourcing
• Lay-offs
• Transition
• Culture
• Language
• Productivity
• Worker Morale
• Diseconomies of Scale
• Selecting a vendor

26
Conclusions and Recommendations

• Benefits of Outsourcing
• Control capital costs
• Increase efficiency.
• Reduce labour costs.
• Reduce risk.

27
Conclusions and Recommendations

• Crucially, it allows the project to be started
  quickly.
• Resources to start the project immediately.
• Workers can be trained quickly.
• Setting-up can take very long when done
  domestically.

Almond can thus undercut its opposition.
28
Conclusions and Recommendations
Other factors that will contribute to the dMp
cameras success

• Existing brand name.

• Cost-effective internet advertising.

• Strong economic prospects for the future with
  little forecast volatility in the European or
  Asian markets.

29
Conclusions and Recommendations

• Financially viability.

The dMpcamera is a viable project with potential
for high profits and should proceed.
Production should be outsourced.