Intl Trade Mgmt Business Plan
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nokia_lumia_920-answer.rtfNokia Lumia 920 27
Table of Contents
HYPERLINK \l "_Toc348360634" 1. Executive Summary 4
HYPERLINK \l "_Toc348360635" Introduction 4
HYPERLINK \l "_Toc348360636" 2. Corporate Profile and Nature of Business 4
HYPERLINK \l "_Toc348360637" Company Background 4
HYPERLINK \l "_Toc348360638" Description of Business and Product 5
HYPERLINK \l "_Toc348360639" Core Competencies 5
HYPERLINK \l "_Toc348360640" Description of Product 5
HYPERLINK \l "_Toc348360641" Key Milestones 6
HYPERLINK \l "_Toc348360642" Background for Exporting 6
HYPERLINK \l "_Toc348360643" 3. Management and Human Resources 7
HYPERLINK \l "_Toc348360644" New Export Structure 7
HYPERLINK \l "_Toc348360645" Senior Management Roles and Background 7
HYPERLINK \l "_Toc348360646" External Expertise 9
HYPERLINK \l "_Toc348360647" 4. Target Market and Environmental Scan 10
HYPERLINK \l "_Toc348360648" Environmental Scan 10
HYPERLINK \l "_Toc348360649" Gross Domestic Product (Purchasing power parity) 10
HYPERLINK \l "_Toc348360652" Inflation rate (Consumer prices) 10
HYPERLINK \l "_Toc348360654" Business Climate for the phone industry 11
HYPERLINK \l "_Toc348360655" Major Commercial Risks 12
HYPERLINK \l "_Toc348360656" Consumer Profile 12
HYPERLINK \l "_Toc348360657" Nokia’s Ability to Meet Market Demands 12
HYPERLINK \l "_Toc348360658" 5. Market Entry and Marketing Strategy 12
HYPERLINK \l "_Toc348360659" SWOT Analysis 13
HYPERLINK \l "_Toc348360660" Product, Place, Price and Promotion Strategy 14
HYPERLINK \l "_Toc348360661" Criteria of selecting Export Partner 14
HYPERLINK \l "_Toc348360662" 6. Operations Overview and Supply Chain Management 15
HYPERLINK \l "_Toc348360664" Key Changes as a Result of Exporting 16
HYPERLINK \l "_Toc348360665" Maintenance of Competitive Advantage 16
HYPERLINK \l "_Toc348360666" 7. Financial Analysis and Risk Management 17
HYPERLINK \l "_Toc348360667" Financial plan 17
HYPERLINK \l "_Toc348360668" Pre-operational costs 17
HYPERLINK \l "_Toc348360669" Working capital 17
HYPERLINK \l "_Toc348360670" Proforma profit and loss account 18
HYPERLINK \l "_Toc348360671" Export Cost Accounting 19
HYPERLINK \l "_Toc348360673" Impact on Company’s Cash Flow 20
HYPERLINK \l "_Toc348360676" Financial requirements 21
HYPERLINK \l "_Toc348360677" Payment Method 21
HYPERLINK \l "_Toc348360679" Profitability of Venture 22
HYPERLINK \l "_Toc348360681" Risk Management Strategy 23
HYPERLINK \l "_Toc348360682" 8. Conclusion and recommendation 23
HYPERLINK \l "_Toc348360683" Conclusion 23
HYPERLINK \l "_Toc348360684" Recommendation 23
HYPERLINK \l "_Toc348360685" References 24
1. Executive Summary
Nokia Corporation is a Finnish company that deals in mobile phone. It produces high quality phones which it supplies worldwide. For a long period of time, the Company has been the leading vendor of mobile phones. Its core competencies are customer satisfaction, passion for innovation and continuous learning.
Market Potential: The Company seeks to venture into the new market of Casablanca. Grand Casablanca has an estimated population of 3.85 million people majority (60%) of who are between 15 and 60 years. The demand for smartphones in Casablanca is high with Industry figures suggesting that there are more than 600,000 smartphones in circulation, and annual growth is more than 200%.
Manageable risks: Risks such as Shipment delays, incomplete documentation and credit defaults and currency fluctuations are all expected but manageable risks. This will be overcome by the market entry strategy of partnering with local operators and distributors.
Recommendation
The business plan should be presented to the senior management for their deliberations. Upon approval, should begin to incorporate the export structure. The position of Export Operations Manager will need to be filled. Afterwards, suitable local partners should be contacted so that its implementation can start.
Introduction
This business plan aims to establish the feasibility of Nokia entering the new market of Casablanca, the capital city of Morocco to supply its new Smart phone Nokia Lumia 920. The plan includes a detailed analysis of Nokia’s operational and financial strength that would enable it to exploit the demand of Smart phones in Casablanca.
2. Corporate Profile and Nature of Business
Company Background
Nokia is a Finnish Multinational Information and Communication Technology corporation with its headquarters in Espoo, Finland. Its main products are mobile phones, Smart Phones and other portable telecommunication devices. It also specializes in internet services, which includes applications, and games development among other services.
Description of Business and Product
Nokia was the world's largest manufacturer and vendor of mobile phones in 2011, with global market share of 23%. However, this has been declining as a result of the growing use of smartphones from its competitors such as Apple and Samsung. Apples iPhones were highly demanded because they were running on iOS while Samsung’s smartphones were running on Google’s Android OS which were both user friendly compared to Nokia’s Symbian OS. To counter the decline, Nokia has had a strategic partnership with Microsoft, where all Nokia smartphones will be running on Microsof6t’s Windows Phone operating system replacing Symbian. As a result, Nokia has unveiled a number of Windows Phone handsets with the latest being Nokia Lumia 920. To expand its network, the company has partnered with NOKIA mobile company as well as Siemens Network to create what is now known as Nokia Siemens Network.
Core Competencies
Nokia's has an official corporate culture manifesto called The Nokia Way, which has enhanced speed and flexibility in decision making. The company’s core competencies are rooted in this manifesto. These are:
Customer Satisfaction: this quality has enabled the company to win customer loyalty.
Passion for Innovation: this has enabled the company to beat its competitors in the market.
Continuous learning: this has enabled the company to learn from its mistakes as well as the mistakes of its competitors.
Description of Product
Figure 1: Nokia Lumia 920: The world’s most innovative smart phone.
Nokia Lumia 920 is a smartphone developed by Nokia that runs the Windows Phone 8 operating system. It was first released on November 2, 2012. It has a 1.5 GHz dual-core Qualcomm Krait CPU and a 4.5″ IPS TFT LCD which has a high-sensitivity touchscreen which can be used with the gloves worn by the user. It supports inductive charging (it can be charged by being placed directly onto a charging pad). It also has a 8.7 megapixel pure view rare camera with optical image stabilization for still images and videos. It comes with 32 GB internal storage, but does not support expansion using memory cards.
Key Milestones
Table 1: Key Milestones
Nokia N95 Smartphone
Nokia N97 Smartphone
Nokia N8 Smartphone
Nokia 808 pu review
Lumia 710 & 800
Released march 2009
Released June 2009
Released September 2010
Released September 2010
Released February 2012
Properties: 5 megapixel camera and sliding multimedia keys.
Properties: sliding QWERTY. (S60 5th
Properties: First Symbian 12 megapixel autofocus lens. (Symbian^3)
Properties: Last Symbian smartphone features a 41 m .p. camera and a 1.3 GHz CPU.
Properties: First running on Windows phone operating system.
Source: Nokia.com
Nokia has undergone many innovative steps before arriving at Lumia 920 which is the world’s most innovative smartphone. This has been a continuous improvement of its earlier phone. This has seen it achieve key milestones like Nokia N95 (Released March 2009) all the way to Nokia 808 Pureview (Released September 2010) which is the predecessor of Lumia 920.
Background for Exporting
Until 2011, Nokia has been the world’s leading vendor of mobile phones in the world. Nokia operates in over 120 countries and sales in over 150 countries worldwide. This success story has been subject to many economic factors outlined below:
Market Potential: There are about 36.5 million mobile phone subscribers in Morocco, representing a penetration rate of just over 113%. Smartphones are increasingly becoming more popular. Many Moroccans are buying smartphones, taking advantage of deals offered by phone manufacturers such as Apple, Samsung and Blackberry, as well as growing 3G access. Industry figures suggest that there are more than 600,000 smartphones in circulation, and annual growth is more than 200% according to the National Telecoms Regulation Agency (ANRT).
Global demand for Smartphones : All over the world demand for smartphones has gone high. Everyone wants to be connected to the internet using a device that can as well serve many other purposes such as online purchases. Morocco's IT sector is growing at a double-digit pace. Internet access has expanded by three-quarters in 2011 while the mobile phone market increased by more than 14%, according to the National Telecoms Regulation Agency (ANRT).
Manageable Risks : Overcoming risks and barriers in Casablanca market achievable through Nokia’s existing strengths. Initial review of Moroccan market has revealed that, despite steady growth in the use of smartphones, there are remarkably few available local applications. This is a risk that Nokia can overcome by promoting local talents to be innovative.
Product Fit: The Moroccan public authorities and mobile operators have embraced the emergence of smartphones. They are also committed towards the development of applications for public services, companies and other operators.
PRODUCTION
MANAGER
MARKETING
MANAGER
EXPORT OPERATIONS MANAGER
HR
MANAGER
FINANCE
MANAGER
REGIONAL MARKETING REPS
ADMINISTRATIVE ASSISTANTS
R & D
PRESIDENT
MARKETING
PRODUCTION
OPERATIONS
HR
FINANCE
3. Management and Human Resources
New Export Structure
Figure 2: Nokia’s New Export Structure.
4. Senior Management Roles and Background
President: XXXXXXXXX
Key responsibilities as pertains to international trade:
- Oversees smooth running of the company.
- Makes final decisions on marketing strategy
-Instills the company’s new export initiative vision.
Background:
Mr. XXXXXXXXX was born in the Grand Casablanca region of Morocco. He pursued a bachelor’s degree in telecommunications and a master’s degree of the same in Massachusetts University. Mr. XXXXXXXXX also has masters in business administration. He has a wide experience in managing international business having worked in various international organizations
Finance Manager: yyyyyyyyyy
Key responsibilities as pertains to international trade:
- manages all company budgeting activities
-Preparers the company’s financial statements.
- advises the company on credit terms
- determines Nokia’s borrowing needs and initiates discussions with banks institutions.
Background:
Mr. yyyyyyyy is a Certified Public Accountant and has worked in the financial departments of various Casablanca based institutions. He is also a member of Institute of Certified Public Accountants of Morocco. Prior to joining Nokia, Mr. yyyyyyy has been running a highly successful private consulting firm in Casablanca.
Production Manager: Mr. zzzzzzzzz
Key responsibilities as pertains to international trade:
- sets production schedule and directs production staff
- Works closely with the Operations Manager to determine production needs
- manages routine maintenance and repair schedule of equipment
- oversees materials management
Background:
Mr. zzzzzz was born and raised in Alexandria, Egypt and entered the phone production industry as intern in Samsung’s Alexandrian plant. After graduating from Alexandria University, Mr. zzzzzz joined the same company where he worked for 10 years before joining Nokia.
Marketing Manager: Ms. ttttttttt
Key responsibilities as pertains to international trade:
- developing marketing strategies for Nokia.
- liaising closely with regional marketing representatives.
- overseeing production of promotional materials
- developing Nokia’s marketing literature.
Background:
Ms. tttttt was born and raised in Kenya. She joined University of Nairobi for a marketing degree. She also has a masters’ degree in strategic marketing from London School of Business. She has worked as senior marketing manager at Kenya’s leading mobile telephony service provider Safaricom. She oversaw the marketing of Kenyan’s mobile banking industry dubbed as M-pesa.
Export Operations Manager: Mr.qqqqqqq
Key responsibilities as pertains to international trade:
- manages all the export operations activities of Nokia in Morocco.
- Works closely with the production manager to determine production needs.
- Supervises all the logistics issues of Nokia in Morocco.
Background:
Mr. qqqqqq was born and raised in Japan. He is an expert in the Japanese production and operations techniques. Prior to being posted to Morocco, Mr. qqqqqqq has been working as Nokia’s regional operation’s manager in Middle east. He is fluent in French, the business, government and diplomatic language of Morocco as well as basic Arabic, which is the, official language.
A close examination of Nokia’s management structure reveals much inherent strength:
- A diverse management team. Over 70% of Nokia’s workforce comes from foreign countries. This multicultural background creates acceptance of cultural differences hence enabling the company to overcome cultural and language barriers.
- International trade experience : Many of Nokia’s management team has an experience in international trade hence it will be easy for them to cope with challenges that emerge along the way.
External Expertise
Despite these strengths, Nokia lacks expertise in several areas, which it will, need to outsource.
International Lawyer: Consultation with a lawyer well versed in international trade law and experienced in North African practice especially in Morocco is extremely important in identifying legal costs and risks involved. Nokia will also need a lawyer to draw up its terms and conditions for its contracts with foreigners and buyers.
Freight Forwarders: Nokia will also need to use an external transporter for its phones, but will have increased reliance on substantial international shippers such as EMS and DHL Express, two companies that are internationally reputed and also run their operations in the Atlantic ocean coastline where Casablanca is strategically situated.
Banking and Insurance: Nokia’s export strategy will involve extra shipping costs and risks. This will call for short-term loan from its current National Bank of Finland as well as export insurance from its High seas Insurance Company of America.
Translators: Marketing literature for the Moroccan market will need to be translated into Arabic, the official language of Morocco as well as French the business, government and diplomatic language. Experienced translators will be required who can also assist the company in developing gorgeous catchy slogans for its brand.
4. Target Market and Environmental Scan
Environmental Scan
Morocco has proximity to Europe. This strategic geographical location plus a relatively low labor costs has helped her to build a diverse, open, market-oriented economy. In the 1980’s Morocco adopted pro-market reforms, overseen by the International Monetary Fund (IMF). Since taking the throne in 1999, King MOHAMMED VI has presided over a stable Moroccan economy marked by steady growth, low inflation, and generally declining government debt. Industrial development strategies and infrastructure improvements – for instance a new port and free trade zone near Tangier - are improving Morocco's economic competitiveness. Key sectors of the economy include agriculture (16.6%), industry (32.2%) and services (51.2%) according to the (2011 est.) In 2006, Morocco entered into a bilateral Free Trade Agreement with the United States; it remains the only African country to have one. In 2008, Morocco entered into an Advanced Status agreement with the European Union.
(CIA – The World Fact book, Morocco, 2009)
Table 2: Key Economic Indicators
Economic Indicator
Morocco
Gross Domestic Product
( P urchasing power parity) note: data are in 2011 US dollars
(2011 est.)
$163 billion
(2010 est.)
$155.8 billion
(2009 est.)
$150.1 billion
Gross Domestic Product
( R eal growth rate )
(2011 est.)
4.6%
(2010 est.)
3.7%
(2009 est.)
4.9%
Inflation rate
( C onsumer prices)
(2011 est.)
1.9%
(2010 est.)
1%
Table 2 above provides a longitudinal profile of Morocco’s economic performance and reveals several factors that create a positive investment climate. A steady increase in GDP and decline, in inflation, denotes a well-managed economy that has a positive growth which is exceptionally conducive for direct foreign investments.
Business Climate for the phone industry
In 1993, the government of Morocco introduced tough privatization reforms which change her economy into a liberal one governed by market forces of demand and supply. This has led to steady yearly growth in the region of 4–5% from 2000 to 2007, including 4.9% year-on-year growth in 2003–2007. Telecommunication sectors have gone strong, due to a steady economic growth. In 2010, the country was about to reach 32 million subscribers to mobile telephone lines. At the end of 2009, it had just over 25 million lines, which means a growth in this sector of 26%. The increase in applications for mobile phones and increased competition in the telephone market has brought this rate upward. (Moroccan Nationa l Agency of Telecommunications, 2011)
These economic conditions have both positive and negative implications for Nokia.
Positive:
Lower Costs – To create a conducive environment for direct foreign investments, Moroccan authorities has progressively reduced its high import tax. This reduction will amount to significant savings for Nokia.
Higher International Standards –Since Morocco entered into a bilateral Free Trade Agreement with the United States in 2006 and Advanced Status agreement with the European Union in 2008, the quality of phones entering Morocco must meet high international standards. This is advantageous for Nokia which produces durable phones like Nokia Lumia 920 since fake pones will have minimal entry.
Negative:
The drawback of liberalizing the Moroccan economy (especially the telecommunications sector) is the influx of other foreign competitors like Samsung and Apple who are also in the business of producing smartphones.
Major Commercial Risks
Poor Legal Protection – Morocco being a developing country has weak a weak judicial system which is yet to catch up with economic reforms. This will leave Nokia vulnerable hence resulting to increased legal costs.
Poor Intellectual Property Protection - Due to weak legislation in relation to Intellectual property fake Nokia Lumia 920 phones may be introduced into the market hence diluting Nokia’s market share.
Consumer Profile
Primary market: Casablanca.
Casablanca being the economic hub of Morocco will be Nokia’s primary. The population of Grand Casablanca was estimated in 2005 at 3.85 million. 98% live in urban areas. Around 66% are between 15 and 60 years of age. The population of the city is about 11% of the total population of Morocco. The 15-60 age groups will form Nokia’s primary market. Since the majority of the population is business people, they will distribute the phones to other regions of Morocco hence reaching to our secondary market.
Nokia’s Ability to Meet Market Demands
Sustainable Supply– Smartphones are in their beginning stages of the product life cycle in Morocco. This implies that the demand will not go down any soon. The supply will be enhanced by Nokia Siemens Network that will ease the supply chain management.
Quality smartphones-Nokia phones are internationally renowned for their high quality and durability. This is because Nokia has partnered with other great companies like Microsoft, Siemens, and AT&T who buffer the quality of the phones.
Innovation-this is one of Nokia’s core competencies. Production of innovative products like Nokia Lumia 920 will enable the company to meet the market demand for a long time.
5. Market Entry and Marketing Strategy
This business plan proposes that Nokia’s market entry strategy should take the form of a partnering arrangement with local mobile phone service providers as well as local mobile distributors. The merits and justification for this proposal will be discussed within the context of a SWOT analysis on Nokia Corporation and benefits the company can expect to accrue through this partnership.
SWOT Analysis
Strengths
Nokia is famous worldwide as one of the leading mobile phone vendors. This has been enabled by its commitment to innovation. As a result, Nokia has a research and development team that has a full-time commitment to researching new technologies and designs.
Weaknesses
Financial resources - To produce quality smartphones, Nokia must partner with other companies to purchase hardware and software. This highly constrains the financial resources of the company.
Inexperience – Nokia lacks connections and distribution networks in the Moroccan market. Not being able to access a strong distribution link into Morocco could hamper the company’s entry strategy into the country and prevent it from performing effectively against aggressive competitors like Samsung, Apple, HTC and Alcatel.
Opportunities
Target Locations – Casablanca, the economic capital of Morocco are the prime target for Nokia’s initial entry.
Product - The markets crave for sleek smartphones has provided Nokia with the opportunity to sell the world’s most innovative smartphone.
Threats
Threats in Morocco will come from Nokia’s competitors. These are Samsung, Apple, HTC and Alcatel.
Market Entry
Par tnership with Telecom operators
Nokia will partner with local mobile phone service providers as its sales agents.
These telecoms operators are Maroc Telecom, holding 60.71% of the market and Meditel, holding 36.69% of the market among other mobile phone distributors.
This approach has the following advantages:
- Low Risk: Partnership can be terminated upon unsatisfactory performance.
Low Investment: Payment from Nokia will only be through commission of sales.
Already established distribution network.
Local knowledge of the economy.
Upon finding an appropriate partner to undertake this relationship, Nokia will enter into a one-year contract, with the agent. However, routine reviews of the partnership will be made by both parties with negotiations on the renewal of the partnership to be held on an annual basis.
This entry strategy can be verified within the context of the company’s product, pricing, place and promotion strategy.
Product, Place, Price and Promotion Strategy
Product Strategy
Local partners already have established distribution networks, which will save, Nokia a lot of time and costly research. The local partner would also be best suited to predict upcoming trends in the market and advice on minor modifications needed to Nokia’s current product. There are also regional differences between local markets that only a business could pick up through extensive experience in a country.
Pricing Strategy
Nokia Lumia 920 is a very innovative smartphone hence it can be sold at a premium price. A high premium price commanded by a product often requires justification of the product’s cost. With the expertise and help of a local partner, Nokia can refine its messaging to emphasize on the quality and innovativeness of the phone as support for its higher cost.
Place Strategy
A local partner who understands Morocco well will help Nokia deal with customs and documentation procedure without a tremendous hustle hence saving on time and cost.
Promotion Strategy
A local partner will help Nokia translate its marketing literature into a form that the local residents will understand. This will help spearhead a very strong brand.
Criteria of selecting Export Partner
The partner must possess the following qualities:
- Has well established distribution networks in morocco
Established in Morocco for more than five years
Financial stability and a history of timely payment
6. O perations Overview and Supply Chain Management
Smooth operations are key to the success of Nokia as a phone manufacturer.
Domestic versus Export Operational Structure
PRESIDENT:
Authorizes proposals from Production Team
OPERATIONS MANAGER
Coordinates all the teams
PRODUCTION MANAGER :
Receives orders from the operations team and then
Supervises then production process
H.R. MANAGER
Hires the needed workforce
MARKETING & SALES MANAGER :
-Prepares marketing and promotional materials.
-Receives orders from customers, processes them and then delivers the products.
FINANCE MANAGER :
- invoice customer upon delivery of products
- track payment and follow up with payment reminder
- prepare financial statements to reflect sales
Domestic Operational Structure
Export Operational Structure
PRESIDENT:
Authorizes proposals from Production Team
EXPORT OPERATIONS MANAGER
Coordinates all the export operations
PRODUCTION MANAGER :
Receives orders from the operations team and then
Supervises then production process
H.R. MANAGER
Hires the needed workforce
MARKETING & SALES MANAGER :
-Prepares marketing and promotional materials.
-Receives orders from customers, processes them and then delivers the products.
FINANCE MANAGER :
-prepare financial statements
- obtain export credit insurance
- invoice partner upon delivery
- track payment and follow up with payment reminder
Key Changes as a Result of Exporting
The main difference between the domestic and the export operational structure is that the role of the operations manager is now in the hands of an Export Operations manager. The Export Manager is in charge of the partner contract, establishes the sales volume with the partner and sets the purchasing schedule for the year. The rest of the teams function as outlined above.
Maintenance of Competitive Advantage
Nokia will remain competitive in the mobile phone production industry because of its full time commitment to innovation by the highly skilled R & D team. Also, access to state-of-the-art technology will always keep it ahead of the competitors. Production of superior products will, as a result, enable the company to fix premium prices.
7. Financial Analysis and Risk Management
Financial plan
Pre-operational costs
Pre-operational costs that the business expects to incur are included in the Table 3 below.
Cost component
Amount ( US $ )
Machine and equipment
345,000
Other equipment
57,000
Fixture and fittings
100,000
Materials
100,000
Deposit for rent
20,000
Deposit for water
1,000
Deposit for electricity
3,000
Advertisement campaigns
20,000
Hiring employees
23,000
Business licenses and permits
14,000
Transport and Communication
10,000
TOTAL
693,000
Table 3: Pre-operational costs
Source: Author (2013)
Working capital
Working capital will be calculated as follows:
Working capital= Current Assets-Current Liabilities
At start-up, the working capital shall be = US $ 307,000
Proforma profit and loss account
The table 4 below shows the projections for profit and loss account.
ITEM
2012
2013
2014
US $
US $
US $
Service revenue
2,400,000
3,120,000
3,432,000
Direct costs
572,832
630,115
693,127
Gross profit
1,827,168
2,489,885
2,738,873
Overhead expenses
Indirect costs
795,163
238548.9
71564.67
Depreciation
100,400
60,320
48256
Total expenses
895,563
298,869
119,821
Profit before tax
931,605
2,191,016
2,619,053
Tax (15%)
139,741
328,652
392,858
Net profit after tax for the year
791,864
1,862,364
2,226,195
Cumulative profits
791,864
2,654,228
4,880,422
Table 4: Proforma profit and loss account
Source: Author (2013)
Assumptions
The business will pay tax of 15% on profit before tax, and this percentage is expected to remain constant for the first three years of operation.
The service revenue will grow by 30% per year.
The direct costs are assumed to increase by 10% while the indirect cost will increase by 30% per annum.
The direct costs include the costs of direct labour and direct material. The direct cost per phone is US $ 91.80 X 6240 phones per annum= US $ 572,832.
The number of phones is calculated at 20 per day, 20X6 days =120 phones per week and 120X52 weeks = 6240 phones per year.
The indirect cost per phone was calculated to be US $ 127.4 per phone. Therefore, annual indirect cost is calculated as US $127.4X6240 = US $795,163
The indirect cost include the cost of all overhead expenses such as indirect labour, interest expenses, operating expenses, and support services.
Export Cost Accounting
Proforma balance sheet
The following table presents the projected balance sheet of Nokia
Jan-2012
Dec-2012
Dec-2012
Dec-2012
ASSETS
US $
US $
US $
US $
Fixed Assets
Machine and equipment
402,000
402,000
402,000
402,000
Fixtures and fittings
100,000
100,000
100,000
100,000
Total value at cost
502,000
502,000
502,000
502,000
Less accumulated depreciation
100,400
160,720
208,976
Net Book value of assets
502,000
301,600
241,280
193,024
Total fixed assets
502,000
301,600
241,280
193,024
Current assets
Cash
474,000
1,310,756
3,175,785
5,327,098
Deposits
24,000
48,000
30,000
35,000
Debtors
-
46,000
22,400
25,300
Total Current assets
498,000
1,404,756
3,228,185
5,387,398
TOTAL ASSETS
1,000,000
1,706,356
3,469,465
5,580,422
Financed by
Loan
300,000
214,491
115,237
-
Partners
100,000
100,000
100,000
100,000
Owner's equity
600,000
600,000
600,000
600,000
Net profit(loss)
791,864
2,654,228
4,880,422
TOTAL EQUITY
1,000,000
1,706,356
3,469,465
5,580,422
Table 5: Proforma Balance sheet
Source: Author (2013)
Assumptions:
The depreciation on the fixed assets is 20% calculated on reducing balance.
- The business will have debtors owing US $ 46,000 as at the end of the first year due to its credit policy. This is because the business will relax credit facilities in order to attract more customers within the inception year. However the business will tighten its credit policy to recover debts and reduce debtors balance to US $22400 in the second year, but this is expected to rise to US $ 25,300 as the business gets more clients who might still opt for credit facilities.
Impact on Company’s Cash Flow
Projected cash flow statement
The table 6 below shows the cash flow projection for the first year of operations.
ITEMS
JAN
FEB
MAR
APR
MAY
JUN
JULY
AUG
SEP
OCT
NOV
DEC
Receipts
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
US $
Bal b/f
524,608
589,215
653,822
718,430
783,037
847,645
912,253
976,861
1,041,468
1,106,076
1,170,684
Capital
1,000,000
-
-
-
-
-
-
-
-
-
-
-
Service revenue
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
Total receipts
1,200,000
724,608
789,215
853,822
918,430
983,037
1,047,645
1,112,253
1,176,861
1,241,468
1,306,076
1,370,684
Payments
Taxation
11,645
11,645
11,645
11,645
11,645
11,645
11,645
11,645
11,645
11,645
11,645
11,645
Machines and equipments
402,000
-
-
-
-
-
-
-
-
-
-
-
Fixtures and fittings
100,000
-
-
-
-
-
-
-
-
-
-
-
Salaries and wages
73,000
73,000
73,000
73,000
73,000
73,000
73,000
73,000
73,000
73,000
73,000
73,000
Deposits
24,000
-
-
-
-
-
-
-
-
-
-
48,000
Material requirements
35,040
35,040
35,040
35,040
35,040
35,040
35,040
35,040
35,040
35,040
35,040
35,040
Permits and licences
14,000
-
-
-
-
-
-
-
-
-
-
5,000
Support Services
5,308
5,308
5,308
5,308
5,308
5,308
5,308
5,308
5,308
5,308
5,308
5,308
Interest on loan
3,750
3,667
3,583
3,498
3,411
3,324
3,235
3,146
3,055
2,963
2,871
2,776
Principal paid
6,649
6,732
6,816
6,901
6,988
7,075
7,164
7,253
7,344
7,436
7,528
7,623
Total payments
675,392
135,393
135,393
135,393
135,392
135,392
135,392
135,392
135,392
135,392
135,392
188,392
Net cash
524,608
589,215
653,822
718,430
783,037
847,645
912,253
976,861
1,041,468
1,106,076
1,170,684
1,182,291
Break even analysis
Gross profit in the first year (indicated in the profit and loss account is US $ 1,827,168
Gross profit margin= (1,827,168/2,400,000) 100= 76%
Total Overhead for the first year= US $ 895,563
Breakeven level of sales= (overhead expenses/gross profit margin) X100
= US $ (895,563/76) X100= US $ 1,176,329
Financial requirements
As at start up, the business will require US $. 1,000,000.
Item
Amount ( US $ )
Pre-operational costs
693,000
Working capital
307,000
Total
1,000,000
Payment Method
Proposed capitalization
The total investment in the business at startup will be US $ 1,000,000. This will comprise of the owner’s equity of US $ 600,000, partners contribution of US $ 100,000 and bank loan of US $ 300,000 borrowed from National Bank of Finland.
Source of capital
Amount (US$)
Owner’s equity
600,000
Partners contribution
100,000
Bank loan
300,000
Total
1,000,000
The loan will be repaid in 36 equal monthly installments at an interest rate of 15% per annum calculated on reducing balance.
Profitability of Venture
Projected profitability ratios
The proprietor projects the following profitability ratios for the business in the first three years of operation.
The calculations are as follows:
Gross margin= (Gross profit/service revenue) X100
Return on equity= (Profit after tax /owner’s equity) X100
Return on assets= (profit after tax add interest/investment) X100
Year
Gross Profit Margin
Return on equity
Return on assets
2010
76%
46%
158%
2011
79.8%
54%
371%
2012
79.8%
40%
443%
Risk Management Strategy
Commercial Risk: Shipment delays, incomplete documentation and credit defaults are all events that could prevent Nokia from receiving payment in accordance with the contractual terms of the sale.
Currency Risk: The Moroccan currency Dirham is subject fluctuation. This will affect Nokia’s business negatively unsustainable.
Risk mitigation
Strict credit facilities will help reduce the number of defaulters. Proper documentation will also help reduce shipment delays. Agreement with the partners will help deal with currency fluctuations.
8. Conclusion and recommendation
Conclusion
The purpose of this business plan was to evaluate the feasibility of Nokia exporting its Nokia Lumia 920 to Casablanca Morocco. Market analysis has shown that Casablanca is a suitable opportunity which can be exploited if the company focuses on its core competencies, as well as partnering with local telecom operators and mobile phone distributors.
Recommendation
This report should be presented to the senior management for their deliberations. Upon approval from senior management officials, Nokia should begin to incorporate the export structure. The position of Export Operations Manager will need to be filled. Senior manager and departmental meetings need to begin incorporating the export venture into their domestic operations. Afterwards, suitable local partners should be contacted so that its implementation can start.
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