Case Assignment #2
— Caribbean Internet café
Name: Liu Yang
Instructor name: Renee Majeau
Course name: SMGT4470 – Selected Topics in Business
Date: November 24, 2017
Table of Contents Executive Summary 2 Issue Statement 3 Data Analysis 3 SWOT Analysis 3 Industry Trend 5 Alternatives Analysis 6 Alternative #1 Relocate CIC in low rent area 6 Alternative #2 Use the popular beverage in Jamaica instead of serving coffee 6 Alternative #3 Provide other entertainment (e.g. games) 6 Alternative #4 No changes 7 Consideration Criteria 7 Recommendations 8 Action and Implementation Plan 9 Short-Term 9 Long-Term 9 Exhibits and Tables 10
David Grant wants to open a “typical” Internet café offered computer services after he graduates from the MBA program (Schnarr & Rowe, 2014, p.183). However, he has some issues need to be solved.
This case study report is going to identify the problems they have at first. Then use the SWOTS and Industry Trend models to analyse the feasibility of this idea. Research the strengths, weakness, opportunity, and threats to understand the David and CIC’s internal and external situations. Industry Trend helps to know the future direction of the industry.
Through the analysis to figure out the solution to the problems. List all alternatives and find the pros and cons of each option. By setting up the decision criteria to measure which one is the best. After that, rate all alternatives according to its performance in different criteria. Then, choose the option with the highest mark. Finally, according to the results, work out the action and implementation plan which can ensure the best alternative works.
He was gathering information on the feasibility of opening it. Because of Jamaica is no similar café, he is wondering that if this idea is feasible. When he lists all the equipment and costs, he only had approximately $500,000 in savings that he was willing to invest in the café and it is not enough (Schnarr & Rowe, 2014, p.185). JTL proposed to invest in CIC, but David not sure if it would be a profitable business for him and JTL. There have two ways to improve the profits, one increases the visiting rates, and another one reduces the costs. The main problem should be how to achieve them.
o Relevant educational background
David is taking the MBA program at the Richard Ivey School of Business in London, Ontario (Schnarr & Rowe, 2014, p.183). He has the high level of education experience which related to business.
o Relevant experience
David has the relevant experience required for the position. Previously, David had worked as a computer system engineer at JTL (Schnarr & Rowe, 2014, p.183). It helps David lease the link to the Internet for a lower price. He had also worked as a part-time teacher and a computer programmer that related to his business (Schnarr & Rowe, 2014, p.183).
o Less competition
It is a new business idea that there is no similar business at Jamaica. Although there has a lot of cafés, no one provides Internet service like CIC. Therefore, the competition is not much in the city.
o Good location
David wants to locate CIC in the New Kingston. It is an excellent location. This area has many companies, and most workers were in white-collar jobs. It also close to several affluent suburbs (Schnarr & Rowe, 2014, p.184). It could attract more customers, and the most customers in this area could afford the costs.
o Good Investor
JTL propose to invest in CIC and own the half of the partnership. It also willing to provide him a long-term loan to start his business and it is enough to cover all the up-front costs (see Exhibit 1).
o High operating costs
CIC has relatively high operating costs due to the high costs of computers and high charge rates. The monthly administration and maintenance expenses also high (see Exhibit 2).
o High risks
There is no similar business in Jamaica. It means that no ready-made experience for reference. David should “cross the river by feeling the stones”. Apparently, there is a risk involved.
o High awareness of the Internet
There was high awareness of the Internet in Jamaica. Mainly corporations and universities used the Internet (Schnarr & Rowe, 2014, p.183). It means that CIC has the market demand.
o Limited by access the Internet
Even at these institutions, people are limited by access the Internet. It is a good opportunity for CIC. These people need the Internet, if there have a place that allowed them using the Internet without limited, they will go there.
· Very low accessibility and usage of Internet
Due to the high cost of computer and Internet charge rates, there was very low accessibility and usage in Jamaica. It means that the number of CIC’s customers will be very limited.
· Coffee was not very popular
Most of the cafés in Kingston did not serve coffee. It because of the coffee is not very popular in Jamaica (Schnarr & Rowe, 2014, p.184). David planned to offer brewed coffee, if people don’t like it, it is the waste of money.
According to the market research firm projected, exhibit 3 shows that the gross profit and loss under the different situations. Only under the pessimistic estimate, CIC will be losing money. The internet users in Jamaica is growing year by year, and the growth rate is rapidly and great (see Exhibit 4). There is a good prospect of the industry trend.
The barrier to enter the industry is not very high. There are not many technical requirements but need the licenses and permits. The potential of new entrants into the industry is medium. Although there have a lot of cafés in the city, no one provides the Internet services. The customers have not much bargaining power, and the threat of substitute products also low (see Exhibit 5).
According to the analysis, David’ idea about the Internet café is feasible. But in the pessimistic scenario, the monthly earnings cannot cover all the monthly expenses. According to this situation, the following alternatives are going to help CIC increase the visiting rates or reduce the costs.
Cons: The inexpensive areas usually have lower customer flows than city’s business district. The CIC’s target segment customers are mainly concentrated in the business district. Leaving this area may lead to reducing the visiting rates and sales.
Pros: It could be saving a lot of money in coffee machines and material costs. Serve more popular drinks could increase the sales.
Cons: Not serve coffee will dissatisfied customers who would like to drink coffee. In addition, it will be missing a benefit that provides more options for customers to choose the drinks they want.
Cons: This alternative will increase the budget. It will be noisy when the customers are playing the games. It could affect the customers who like the peaceful environment.
Pros: Good location and do not need to make any changes. It avoids spending more times, money and efforts to create new budget and research.
Cons: In the pessimistic scenario, the CIC will be losing money. David wants to serve coffee, but it need purchase the expensive equipment and the profit not very high.
When making the decision, the profit is the most important criteria. The reason is that David’s primary concern of CIC is its profitability. Then is the costs efficiency. Because of the loans from JTL could cover the current budget and do not have much extra money left. Another one is the visiting rate. In the pessimistic estimate, the segment only visits twice per year. If the visiting rate could improve, the profits also will increase. The last one is the competitive advantages. It could help the CIC gain more market shares (see Exhibit 6).
According to the four consideration criteria, exhibit 7 shows the results of evaluating the four alternatives. As the results, the alternative #2 and #3 have the best performance. The recommendation is that CIC could use the local’s popular beverage instead of coffee and provide more entertainment.
The Alternative #1 has the best cost efficiency due to it could reduce a lot of expense on the lease. However, leaving the city’s business district means that the customers and profits will decline as well. Therefore, it is not worth to relocate CIC to reduce costs.
The alternative #2 also has a better cost efficiency. The use the local’s popular beverage instead of coffee could reduce the costs of coffee equipment and do not impact too much on the sales, so it better than serving coffee.
The alternative #3 will increase the costs but not too much. Provide more entertainment could increase the sales through attract more customers to visit. The diversified services could improve the competitive advantages effectively.
The alternative #4 is do not make any change. It is the most straightforward option, but it not always profitable. Compare with alternative #4, the alternative #2 and #3 are more efficiently solve the problem.
· Conduct a market research to find the most popular beverage in the local market.
The beverage usually has the higher profits (see Exhibit 8). Through serving the popular beverage to increase the sales and profits.
· Purchasing some board games
· Establish long-term cooperation with a popular local bakery
CIC could build a long-term stable relationship with a popular local bakery to reduce the food costs. It could realize the mutual development of both sides.
· Introduce the video games
To attract more customers, CIC could introduce more video games like Wii, Xbox, PlayStation 4, etc. It will be useful in attracting customers, especially CIC’s target segments.
· Provide private rooms
To solve the noise problem, CIC could provide some private rooms to the customers who prefer the quiet place.
Exhibit 1: Up-Front CostsExhibit 2: Monthly PaymentsExhibit 3: Estimate of Gross profitsExhibit 4: Internet users – Jamaica Source: http://mecometer.com/whats/jamaica/internet-users/Exhibit 5：Porter’s Five Forces AnalysisPorter’s Five ForcesCompetition in the industryLowPotential of new entrants into the industryMediumPower of suppliersMediumPower of customersLowThreat of substitute productsLowExhibit 6: Consideration CriteriaAlternativesDecision CriteriaCosts efficiency (30%)Visiting rate improvement(20%)Profits improvement (40%)Competitive advantages (10%)Alternative #14111Alternative #23333Alternative #31444Alternative #42333
Exhibit 7: ResultsAlternativesDecision CriteriaTotalCosts efficiency (30%)Visiting rate improvement(20%)Profits improvement (40%)Competitive advantages (10%)Alternative #14*.3=1.21*.2=.21*.4=.41*.1=.11.9Alternative #23*.3=.93*.2=.63*.4=1.23*.1=.33.0Alternative #31*.3=.34*.2=.84*.4=1.64*.1=.43.1Alternative #42*.3=.63*.2=.63*.4=1.23*.1=.32.7Exhibit 8: Hourly earningsReference:Schnarr, K. & Rowe, W. G. (2014). Caribbean Internet Café. Richard Ivey School of Business Foundation. Ivey ID: 9A98B006. London, Canada: Ivey PublishingUp-Front Costs:Utilities deposite7,000.00$Ads20,000.00$Other costs120,000.00$Total costs:147,000.00$Total Equipment:1,426,000.00$Total Up-front costs:1,573,000.00$Current Savings:500,000.00$Money deficit1,073,000.00$Sheet1Up-Front Costs:Utilities deposite$ 7,000.00Ads$ 20,000.00Other costs$ 120,000.00Total costs:$ 147,000.00Total Equipment:$ 1,426,000.00Total Up-front costs:$ 1,573,000.00Current Savings:$ 500,000.00Money deficit$ 1,073,000.00Monthly Salary:Part-time$40*15*42,400.00$Manager40,000.00$Total Salary payment42,400.00$Monthly ExpensesLease 30,000.00$Utilities15,000.00$Lease link10,000.00$Insurance10,000.00$Ads, mkt&promotion10,000.00$Adm&Maintenance50,000.00$Total Expenses125,000.00$Total monthly payment167,400.00$Sheet1Monthly Salary:Part-time$40*15*4$ 2,400.00Manager$ 40,000.00Total Salary payment$ 42,400.00Monthly ExpensesLease$ 30,000.00Utilities$ 15,000.00Lease link$ 10,000.00Insurance$ 10,000.00Ads, mkt&promotion$ 10,000.00Adm&Maintenance$ 50,000.00Total Expenses$ 125,000.00Total monthly payment$ 167,400.00OptimisticallyRealistic projectionPessimistic estimateSize of target segment20,000.00 20,000.00 20,000.00Percentage50%40%30%visiting times532Total visting per year50,000.00 24,000.00 12,000.00Total visting per month4,166.67 2,000.00 1,000.00Hourly earnings144.00$ 144.00$ 144.00$Total monthly earnings600,000.00$ 288,000.00$ 144,000.00$Total monthly payment167,400.00$ 167,400.00$ 167,400.00$Gross profit (loss)432,600.00$ 120,600.00$ (23,400.00)$Sheet1OptimisticallyRealistic projectionPessimistic estimateSize of target segment20,000.0020,000.0020,000.00Percentage50%40%30%visiting times532Total visting per year50,000.0024,000.0012,000.00Total visting per month4,166.672,000.001,000.00Hourly earnings$ 144.00$ 144.00$ 144.00Total monthly earnings$ 600,000.00$ 288,000.00$ 144,000.00Total monthly payment$ 167,400.00$ 167,400.00$ 167,400.00Gross profit (loss)$ 432,600.00$ 120,600.00$ (23,400.00)Internet:Hourly Sales120.00$Hourly Costs60.00$60*40%24.00$Food& Beverage:Sales140+60200.00$Costs50+3080.00$120.00$Hourly earnings144.00$Sheet1Internet:Hourly Sales$ 120.00Hourly Costs$ 60.0060*40%$ 24.00Food& Beverage:Sales140+60$ 200.00Costs50+30$ 80.00$ 120.00Hourly earnings$ 144.00