SCUBY’S ENTERPRISES: STARTING A BUSINESS IN GHANA
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SCUBY’S ENTERPRISES: STARTING A BUSINESS IN GHANA Juliana Faircloth, Helen Fisher and David MacNicol wrote this case under the supervision of Francis Ayensu and Nicole Haggerty solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2014, Richard Ivey School of Business Foundation Version: 2014-04-01 In October 2011, Nana Ofosu looked up from up from the papers he had been reviewing and stretched. As he gazed out at the booming market, he was again inspired by the challenge he had set himself: to start a business, Scuby’s Enterprises Limited (Scuby’s), to provide photocopying services to the population of Koforidua, Ghana. He was now trying to decide if this was a feasible business proposition. He refocused on the papers, determined to make the decision soon. He hoped to begin operations in December so that the business would be established before school started again in January 2012. ECONOMY Ghana was established as a country in 1960. It now has one of the highest gross domestic products (GDP) and fastest growing economies in Africa.1 The main Ghanaian industries are agriculture, mining and, most recently, oil. Over half of the working population is engaged in agriculture.2 Mining has become an increasingly important player in the country’s industrial picture; Ghana is now the second largest producer of gold in Africa.3 Most recently, oil has begun to play a major role in the economy. In 2007, an oilfield was discovered that is currently estimated to contain up to three billion barrels of oil. This number is expected to rise as exploration continues.4 In addition, Ghana is known as one of the most economically sound countries in Africa. Although it continues to experience high levels of corruption within its political system, this corruption is considered minimal in comparison with other African countries.5
1 www.worldbank.org/en/country/ghana; www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html .accessed March 15, 2014 2 www.infoplease.com/encyclopedia/world/ghana-country-africa-economy.html,accessed on March 15, 2014 3 www.gepcghana.com/gold.php, accessed March 15, 2014 4 www.bloomberg.com/news/2010-12-01/ghana-oil-reserves-to-be-5-billion-barrels-in-5-years-as-fields-develop.html, accessed March 15, 2014 5 www.bbc.co.uk/news/world-africa-13433790, accessed March 15, 2014
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INDUSTRY Koforidua is the capital of the Eastern Region of Ghana. More informally known as K-dua, it currently has a population of 96,266 people.6 The most common form of occupation in the region is self-employment, mostly in the informal marketplace, which employs almost 90 per cent of the working population.7 With this many people working solely in the informal market, the photocopying industry in Koforidua is underdeveloped. This is especially apparent when compared with the significantly more advanced market in Accra, Ghana’s capital city. In both Koforidua and Accra, photocopying services were normally offered as a supplement to general business services rather than the main offering. Although Koforidua is the capital of the Eastern Region, the cost of living and operating a business there is significantly cheaper than it is in larger cities such as Accra. As the commercial centre of the region, the marketplace is crowded with individual vendors selling a wide range of products including clothing, food, electronics and appliances. Storefront locations are limited, leaving many vendors operating in small booths lining the streets. In general, there is little differentiation between the product offerings of competing vendors, so success depends on creating strong customer relationships. The physical layout of the market and its booths and the lack of product differentiation fosters a highly competitive environment. Most vendors decide on selling prices through avid and much enjoyed negotiation instead of pre-set listed prices. Other more established stores have set, non-negotiable prices. Ofosu could chose to sell solely through negotiations; however, based on his business education, he believed that having listed prices would be beneficial to the business. ALL NATIONS UNIVERSITY All Nations University, the largest university in Koforidua, was established in 2002. Since then, it has grown from only 37 students to approximately 3,000 students. Many students and faculty, who travel from surrounding African countries to teach and attend the university, live on and around the campus. The main semesters run from September to April, but there is also a summer semester. This means that students and faculty are at the university all year round, with a higher number of students during the winter months. MANAGEMENT CAPABILITIES When Ofosu was growing up, his mother worked as a vendor in the informal marketplace. As a result, he was extremely familiar with and comfortable in the market environment. After graduating from high school, he moved to Accra where he studied marketing at the Ghana Institute of Management and Public Administration, a well-recognized institution throughout Africa. During these years, he opened a small retail clothing store. This provided him with the opportunity to become familiar with the operations of a small start-up business and allowed him to generate significant savings. With many entrepreneurial family members and friends, Ofosu had a large network of knowledgeable supporters, potential investors and employees. In addition, he possessed a keen entrepreneurial spirit and valued many of the aspects of small business ownership including being able to work for himself, having the authority to make important business decisions and being able to make more creative decisions.
6 http://population.mongabay.com/population/ghana/2299522/koforidua, accessed March 15, 2014 7 http://wiego.org/wiego/informal-economy-ghana-comparative-perspective, accessed March 15, 2014
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THE OPPORTUNITY Ofosu felt he had the skills and resources to successfully start a photocopy store in Koforidua, especially since he had access to a store located just outside the gates of All Nations University. With this location, he felt he would be able to attract a stable customer base consisting of students and faculty throughout the year. Currently, there were no other stores that competitively offered photocopying services in Koforidua. From his previous retail clothing store savings and investments from friends and family, Ofosu had GHS7,0008 to invest in the new business. A photocopying store would require a significant initial investment. He would need to purchase two photocopy machines, a Ricoh and a Canon, as well as a laptop for the initial operations of the business. The photocopy machines would cost GHS1,900 and GHS2,000 respectively, and the laptop would cost GHS700. General set-up costs of the store would be GHS2,000. Investments and their costs are further summarized in Exhibit 1. The store would operate Monday to Sunday from 8 a.m. to 8 p.m. Ofosu would begin by hiring one employee, whom he would pay GHS250 per month. This employee would be trained on the job so that Ofosu could get the store up and running as quickly as possible. Ofosu estimated many other possible costs related to the business. General maintenance would cost GHS100 per month. Electricity for the store would be GHS200 per month. These expenses are listed in Exhibit 2. Variable costs included paper, ink and drums for the photocopier (a drum rolls the paper out of the photocopier). One box of paper, containing 2,500 sheets, cost GHS28. One bottle of ink cost GHS50. Both the Ricoh photocopier and the Canon would require a bottle of ink. The Ricoh could produce 53,000 sheets per bottle of ink while the Canon could produce 40,000 sheets. The drum for each photocopier cost GHS250 and could be used for 30 boxes of paper each. Ofosu determined that the average selling price of a photocopied sheet of paper would be GHS0.05. DEMAND FORECAST Ofosu felt that his primary market would be the students and teachers of All Nations University. This would ensure a reasonably stable demand throughout the year for photocopying services. He estimated both a high and low annual demand forecast for the first three years of operations. He expected demand to be somewhat seasonal, following the school calendar. The summer semester was significantly less busy than the fall and winter semesters so demand would be higher for eight months of the year and lower for the four months of summer. In year one, he estimated 50 customers per day during the fall and winter and 25 customers per day in the summer. In year two, he estimated 55 customers per day during the fall and winter and 25 per day in the summer. In year three, he estimated 60 customers per day during the fall and winter and 25 customers per day in the summer. FUTURE OPPORTUNITIES Ofosu’s initial business plan was to offer only photocopying services to his customers. However, he knew that should the business be successful, there was opportunity for growth. In the shorter term, he was
8 Exchange rate in October 2011: CDN$1=GHS1.54; see www.freecurrencyrates.com/convert-CAD-GHS.
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interested in expanding his services to provide binding, posters, passport photos, small billboards and some related merchandise such as USB keys and hard drives. In the long term, he hoped to expand geographically to another location in Koforidua and potentially to the nation’s capital, Accra. CONCLUSION Ofosu sat down to look at the numbers. Before moving forward with opening the photocopying store, he wanted to determine how many customers he would need to break even and what kind of return he would generate over the next three years. He also wanted to keep in mind his personal and professional goals when assessing the opportunity.
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EXHIBIT 1: INVESTMENTS AND THEIR COSTS
Initial Investments Cost (GHS) Ricoh Photocopier 1,900 Canon Photocopier 2,000 Laptop 700 General Setup 2,000
Source: Company files.
EXHIBIT 2: FIXED COSTS
Fixed Costs Cost per month (GHS) Wages 250 per employee Electricity 200 General Maintenance 100
Source: Company files.
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