Case Study

Case Assignment #2

— Caribbean Internet café

Name: Liu Yang

Instructor name: Renee Majeau

Course name: SMGT4470 – Selected Topics in Business

Date: November 24, 2017

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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

Executive Summary

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.

Issue Statement

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.

Data Analysis

SWOT Analysis

· Strengths

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).

· Weaknesses

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.

· Opportunities

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.

· Threats

· 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.

Industry Trend

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).

Alternatives Analysis

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.

Alternative #1 Relocate CIC in low rent area

Pros: The New Kingston is the city’s business district, the rents are much higher than other areas, it is inevitable. Relocate CIC in a relatively inexpensive area could reduce costs significantly.

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.

Alternative #2 Use the popular beverage in Jamaica instead of serving coffee

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.

Alternative #3 Provide other entertainment (e.g. games)

Pros: Provide other entertainment could make the CIC more diversification and attract more customers to visit more times. As a result, it could increase sales and profits.

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.

Alternative #4 No changes

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.

Consideration Criteria

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).

Recommendations

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.

Action and Implementation Plan

Short-Term

· 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

In the short term, David could provide some board games, such as chess, card games, puzzles, etc. The board games are not very expansive. David has enough funds to prepare them.

Long-Term

· 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.

Exhibits and Tables

Exhibit 1: Up-Front Costs

Exhibit 2: Monthly Payments

Exhibit 3: Estimate of Gross profits

Exhibit 4: Internet users – Jamaica 

Source: http://mecometer.com/whats/jamaica/internet-users/

Exhibit 5:Porter’s Five Forces Analysis

Porter’s Five Forces
Competition in the industry Low
Potential of new entrants into the industry Medium
Power of suppliers Medium
Power of customers Low
Threat of substitute products Low

Exhibit 6: Consideration Criteria

Alternatives Decision Criteria
Costs efficiency (30%) Visiting rate improvement

(20%)

Profits improvement (40%) Competitive advantages (10%)
Alternative #1 4 1 1 1
Alternative #2 3 3 3 3
Alternative #3 1 4 4 4
Alternative #4 2 3 3 3

Exhibit 7: Results

Alternatives Decision Criteria Total
Costs efficiency (30%) Visiting rate improvement

(20%)

Profits improvement (40%) Competitive advantages (10%)
Alternative #1 4*.3=1.2 1*.2=.2 1*.4=.4 1*.1=.1

1.9
Alternative #2 3*.3=.9 3*.2=.6 3*.4=1.2 3*.1=.3 3.0
Alternative #3 1*.3=.3 4*.2=.8 4*.4=1.6 4*.1=.4 3.1
Alternative #4 2*.3=.6 3*.2=.6 3*.4=1.2 3*.1=.3 2.7

Exhibit 8: Hourly earnings

Reference:

Schnarr, K. & Rowe, W. G. (2014). Caribbean Internet Café. Richard Ivey School of Business Foundation. Ivey ID: 9A98B006. London, Canada: Ivey Publishing

Up-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$

Sheet1

Up-Front Costs:
Utilities deposite $ 7,000.00
Ads $ 20,000.00
Other costs $ 120,000.00
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 deficit $ 1,073,000.00

Monthly Salary:

Part-time$40*15*42,400.00$

Manager40,000.00$

Total Salary payment42,400.00$

Monthly Expenses

Lease 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$

Sheet1

Monthly Salary:
Part-time $40*15*4 $ 2,400.00
Manager $ 40,000.00
Total Salary payment $ 42,400.00
Monthly Expenses
Lease $ 30,000.00
Utilities $ 15,000.00
Lease link $ 10,000.00
Insurance $ 10,000.00
Ads, mkt&promotion $ 10,000.00
Adm&Maintenance $ 50,000.00
Total Expenses $ 125,000.00
Total monthly payment $ 167,400.00

OptimisticallyRealistic projectionPessimistic estimate

Size of target segment20,000.00 20,000.00 20,000.00

Percentage50%40%30%

visiting times532

Total visting per year50,000.00 24,000.00 12,000.00

Total visting per month4,166.67 2,000.00 1,000.00

Hourly 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)$

Sheet1

Optimistically Realistic projection Pessimistic estimate
Size of target segment 20,000.00 20,000.00 20,000.00
Percentage 50% 40% 30%
visiting times 5 3 2
Total visting per year 50,000.00 24,000.00 12,000.00
Total visting per month 4,166.67 2,000.00 1,000.00
Hourly earnings $ 144.00 $ 144.00 $ 144.00
Total monthly earnings $ 600,000.00 $ 288,000.00 $ 144,000.00
Total monthly payment $ 167,400.00 $ 167,400.00 $ 167,400.00
Gross 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$

Sheet1

Internet:
Hourly Sales $ 120.00
Hourly Costs $ 60.00
60*40% $ 24.00
Food& Beverage:
Sales 140+60 $ 200.00
Costs 50+30 $ 80.00
$ 120.00
Hourly earnings $ 144.00