ib final ppt
TRANSCRIPT
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TRATON- KOMPANGA OOO
Business Entry into Russia: Tea(Consumer Product)
Submitted to:Dr. Raghunathan (Chairman)
Prof. Sudhir Sachdev (President)
Prepared by:
New International Business Development Group (No. 11)Mayank Jaswal (Chairman)
Govind Garg (CEO)Harish Ranganathan(CFO)
Rajesh Roy (CMO)
2011
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Background of Traton
A big conglomerate in India with presence in:
Consumer products unit
White goods unit
Food retail chain
Hotels
Grocery Retail Chain
Established in 1963 with a product Darj T in India
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Why Go GLOBAL?
To increase sales, revenues, and profits
To grow the companys global market share
To achieve greater economies of scale
To reduce risk
To build a global brand
To respond to competitors
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Where In World ?
RUSSIA
Target
The company will start operations in Russia
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Why RUSSIA?
To increase sales, revenues, and profits
70% of Russians' income is disposable vs. around 40% in the West.
Largest importer of tea in the world. The total value of Russian tea imports in2007 was $308.97 million, which is nearly 14% of the global market
Lower costs and higher prices
Retail volume growth rates of 15% and 12% in black standard tea bags and
black specialty tea bags respectively, in 2007
Opportunities
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Opportunities for Indian Tea Companies in theRussian Tea Market
CATEGORIES GLOBAL INDIA RUSSIA
Market size in terms of retail value ($
million)
23,323 876.4 3,266
Market size in terms of retail
volume(Million Kg)
1,765 226.04 161.44
Growth rate in terms of retail value
(08-09)
4.50% 3.50% 12%
Growth rate in terms of retail volume
(08-09)
3.50% 2.60% 2.30%
Per capita consumption (per kg) 0.3 0.7 1.3
Average retail price (in US$ per kg) $13.20 $3.90 $20.20
Growth rate in retail price (2008-09) 0.90% 0.90% 9.50%
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Mode Of Entry
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To have Joint Venture
Provides access to government contacts andexisting distribution network
Provides local help minimizing the problems
associated with bureaucracy and corruption
Good understanding of the Russian market
Sharing of profits and risks
Pooling of resources
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Trade Agreement with Russia
CIS (Commonwealth of Independent States)
APEC (Asia-Pacific Economic Community)
EURASEC (Eurasian Economic Community)
G-20
G-8
No FTA with India so far
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SWOT Analysis of RussiaStrengths:
Ranked 11th by Nominal GDP and 6th by
PPP GDP with average annual growth of6%.
AGR of consumption is 1.7-1.8% per
year, largely due to new middle class
that constitute 50% of the population
Per capita GDP of $10521, as comparedto Indias $1265
Rich in natural resources like coal, oil
and gas, Russian energy independence
Weaknesses:
Corruption
Ranked 123rd
at ease of doing business inRussia (latest world bank survey)
Courts are unpredictable and in need of
urgent reform
Limited access to foreign financing
High rate of poverty and unemployment High rate of public expenditure
Opportunities:
Indo-Russian Trade Relations
Contribution of agriculture into GDP
is just 4.2%
Instant Translation of web-pages
Neighbors need energy Low cost airline carriers
Threats:
Unlawful criminal gangs Fluctuating prices of oil and US Dollar.
High public debt accounts, due to the drop
in stock market and governance issues
Increasing rate of unemployment, recently
increased from 6.5% to 8.9%
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Tax Rates
Corporate Profit Tax: 20%
(2% to the federal budget and 18% to the regional budget)
VAT Rate: 18%
Russia has a regular rate of tax on the income of
individual/entity
13% for a resident on income tax
30% for non-residents on income tax 9% for a resident on dividend income
15% for non-residents on dividend income.
Custom duty: 8% (23%on packaged tea)
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Labor Laws
Russian labor legislations provides certain guarantees foremployees, in particular:
Standard working hours are not to exceed 40 hours per
week.
Overtime is permitted for certain categories of employees incertain circumstances, but generally should not exceed four
hours in two successive days and 120 hours per year.
Trial period last for three months
Direct cash payment to Russian employees in foreigncurrency is prohibited
Freedom of employ any personnel regardless of the
nationality
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Transfer of Profits back home
There is no limit on repatriation of Profit.
Tax rate of 15% is applicable
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Political and Economic Analysis
Political analysis
Current Strengths: Current challenges
Continuity in policies Corruption and crime
International integration Terrorism
Future prospects Future risks
Growing international relations Pressure from bureaucracy
Economic analysis
Current Strengths: Current challenges
Successful economic reforms Unemployment
Strong current account surplus Dependence on foreign money
Future prospects Future risks
Comfortable foreign exchange reserves Decreasing budget surplus
Growing foreign investments Adverse balance of payments
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Social and Technological AnalysisSocial analysis
Current Strengths: Current challenges
Improvement in real income and wage levels High AIDS rate
Educated population High mortality rate
Future prospects Future risks
Revamp of social security benefits Widening income inequality and rising poverty
National welfare fund Increasing spread of the AIDS epidemic
Tax benefits to healthcare and education
Technological analysis
Current Strengths: Current challenges
Advanced space technologies Poor performance on patents
Weak science and technology systems
Future prospects Future risks
Increasing presence of IT sector Piracy and poor infrastructure
Increasing number of skilled workers
Military technologies helping the farming sector
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Marketing Plan
PRODUCT
Darj Tea
Black Tea(500Gm,1Kg)
SEGMENTATION
Two cities with highest population
Moscow with population 11514330
Saint Petersburg with population 4848742
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TARGETING Tea Consuming middle(46%) class in income group of $16000
to $50000 80% of targeted population consumes tea
Total Consumption of tea in both cities by middle class= 80% x
46%x (11514330+4848742)*1.3kg= 7828094 Kg
Black tea consumption is 40% of total tea consumption
Black tea consumption = 40% of 7828094=3131237 kg
We are targeting 7% of the total black tea consumption by
middle class = 7%(3131237) =219187 Kg
Price of Our Tea per Kg = $ 10.5 (50% less than average retail
price in Russia)
Total Market Share which are targeting is of worth = $10.5 per
Kg* 219187Kg = $ 2301463 (approx)
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PRICING
Cost 1.25
Selling Price 10.5
Import Duty 1
Shipping charges 0.01
Middle man expense 1
Advertisement cost 6
Other charges 0.25
Profit 2.69
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COMPETITORS
Company /Brand Market share
Orimi Trade OOO 13.1
Ahmed Tea fabika OOO 13.0
Unilever SNG OOO 9.9
Mai Kompanga OAO 9.6
Akbar Bros Ltd 3.8
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DIFFERENTIATION
Price less than the competitors
Average Retail Price of Tea in Russia= $20.2
Our Price = $ 10.5 (50% less than avg. Retail Price)
Quality
Black Tea from Darjeeling, India
Brews Quickly
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PROMOTION
Advertisement
Newspapers
Argumenty i Fakty
The Moscow Times
Hoardings
Promotion Schemes
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Initial Investments:
Investment Dollar (US)Publishing in newspapers 54000
Hoarding Budget 200000
Promotion scheme 480000
Retail Incentives 300000
Salaries & other expenses 500000
Banner Cost 200000
Miscellaneous expenses 54796
Shipping & Distribution
expenses
440565
Grand Total 1788796
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Income statement: (Projected)
2012 2013 2014
Sales Revenue 2301463 2761752 3314094
Less: Cost of Goods Sold 273983.75 361658 477387.35
Gross Margin 2027479.25 2400094 2836706.65
ess: Selling & Distribution expens 440565.87 583913.28 773288.6
Less: Advertisement expense 1332656.96 439250.08 514473.64
Less: Salaries & Wages 500000 600000 700000
Less: Miscellaneous Expenses 54796.75 65756 78907Earnings before Taxes -300540.35 761174.6 770037.41
Less: Tax expenses (20%) (60108.07) 152234.92 154007.482
Net Income (240432.28) 608939.68 616029.92
( All figures in US $)
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Breakeven Analysis:
Initial Investment $ 1788796
Profit/Loss ( I Year ) $ - 240432.28
Profit/Loss (II Year ) $ 608939.68
Profit/Loss (III Year ) $ 616029.92
Breakeven 3-4 Years
Both cost and Revenues will be shared on the 50:50ratio between TRATON-KAMPANGO
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Organization chart:
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EXIT Strategy:
If MAI KAMPANGO wants to exit the business
FIRST RIGHT OF REFUSAL to be with TRATON
Valuation to be done by a mutually agreed firm.
If MAI KAMPANGO wants to exit the business, it cando so only after 5 years
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Conclusion
The Joint venture Traton-Kompango Ltd
will help our Company to Penetrate the
Russian Market and help us in achieving
our corporate goal of going Global.
d i i ifi
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Product Registration Certificate
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Sanitary-Epidemiological Conclusion Certificate
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GOST-R Certificate of conformity: Health & Safety
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Bibliography The Economist July 4th 2009 pg.63 Article "Courting Disaster"
http://dipp.nic.in/fdi_statistics/india_fdi_index.htm, India FDI Fact Sheet -
April 2011
http://www.gost.sgs.com/product-registration.htm#procedure
http://www.rusimpex.ru/Content_e/Custom/index.htm
http://www.doingbusiness.org/ExploreEconomies/?economyid=159 ,
"Doing Business in Russia 2010". World Bank
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.p
df, GDP(PPP), world bank
CIA (Central Intelligence Agency) The World Factbook Russia,
https://www.cia.gov/library/publications/the-world-
factbook/geos/rs.html#Econ http://commerce.nic.in/trade/international_tpp_cis_13_russia.asp
www.fni.no/russcasp/DBF-bon1009-49-53.pdf, Reflections on Modeling the
Russian Economy41, Wehrheim, P. (2003) Modeling Russias economy in
transition. AshgatePublishing Ltd.
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