3.4: Reliability and validity: Describes the reliability and validity of the information gathered.
4.0 Findings/Empirical framework: Includes all the findings of the research carried out which is based on the framework derived from the theory. In this case, the findings are grouped in three main elements: The company profile, the competitive environment, and the research on viability.
4.1: Company profile: Basic information about the company’s legal form, the organizational structure, and operations.
4.2: Environmental analysis: External analysis which includes the PEST analysis, industry analysis, and market analysis.
4.3: Competitive environment: Includes a competitor analysis of the company’s three main competitors.
4.4: Research on viability: Consists of the strategic factor analysis summary, strategic plan, marketing plan, and a financial plan, to look at the viability of the company.
5.0 Discussion: Includes a discussion of the findings related to the actual problem.
6.0 Conclusions/Recommendations: Based on the outcome of all previous sections, a conclusion will be made. Finally recommendations will be given about the viability of this company startup.
The research questions of this thesis are as following:
Central research question
What is the viability of opening a successful green tea bar company in the Netherlands in 2014?
Theoretical research questions
1. What are the various external factors of strategic management that affect a company?
2. What strategic management methods are needed to determine a company’s internal strengths and weaknesses?
3. What are the essential elements of a company profile?
4. What financial planning tools are needed to assess the financial viability of a company?
Empirical research questions 1. What is the company’s current organizational structure?
2. What are the latest and historical consumption trends of the tea and coffee industry?
3. What factors caused the success of the tea/coffee bar branch in the Netherlands?
4. How is the current Dutch economic and political situation?
5. Who are AGT’s biggest competitors, and what are their strengths and weaknesses currently?
6. What is AGT’s competitive advantage, and what strategy will it implement in the future?
7. What is AGT’s financial projection of the coming of 2014-2016?
8. Based on the company’s internal-, and external analysis, and its chosen strategy, what recommendations can be made about the company’s future?
2.0 THE O RETIC AL F R A MEWOR K
The theoretical framework discusses the theory needed to answer the research questions. The framework consists out of four parts. These parts are the essential elements needed for this research.
Chapter 2.1 Company profile discusses theories about basic information of the company itself. These are the different types of legal forms, theories about the importance and creating of an organizational structure, and finally theory about company operations. After the company profile, the strategic analysis/plan will be discussed in chapter 2.2. This chapter is about the analysis of the external environment and the formulation of a suitable strategy based on the analysis. After that, the marketing plan will be discussed in chapter 2.3. This chapter is comprised of the necessary tools and theories needed to create a marketing plan. Finally in chapter 2.4 the financial plan will be discussed.
This chapter shows the essential elements of a financial plan.
Each of these elements will be discussed using relevant literature, which will then come back in the empirical framework of this thesis.
2.1 COMPANY PROFILE
The company profile contains fundamental information regarding the organization. This includes legal form, company structure, and operations.
LEGAL FORM
“In preparing to conduct business activities in the Netherlands, a company is presented with several choices of how to go about it as well as the legal requirements to be complied with. From a legal and tax point of view, the first priority is deciding on which legal form to use to “house” the proposed Dutch-based activities.”1
The legal framework in the Netherlands is quite open and liberal compared to other countries in the European Union, which makes it easier for foreigners to conduct business. There are no special requirements or restrictions, which makes business here attractive.
The basic legal forms in the Netherlands are:
Sole proprietorship: A sole trader is a one-man owned company. The one person who owns the company is personally liable for business obligations.
Partnership: A partnership is a co-owned company by two or more partners. These partners are then liable for business obligations.
General Partnership (VOF): A VOF is a business which is operated by more than one person. This is done suing partnership agreements, which determine each partner’s contribution in the company, liability, and entitlement. All partners are jointly, but also personally liable for business obligations.
Limited Partnership (CV): A CV is a limited partnership which is operated by more than one person, but with this legal form, there are certain types of partners. There are active and silent partners. The silent partner is usually the person who backs the sole proprietor financially. Therefore, the silent
1 Ibpus (2012). Netherlands Business Law Handbook: Strategic Information and Laws. United States:
partner is only liable for the investment he or she made in the company. The active partner is then allowed to make decisions based on day to day activities. With this kind of partnership, the active partner is personally liable for business obligations. Furthermore there are some differences in tax.
The active partner is considered a sole proprietorship and thus has to pay income tax on its share of profits, which is not the case for the silent partner.
Private Limited Liability Company (BV): A BV is a private limited liability company, which is considered a legal entity on itself, meaning that the owners are not personally liable for business obligations, which limits the owners’ risk. The paid in capital required to start a BV in the Netherlands is €18000. It is important to know that shareholders are only liable for their own cash invested in the company. When a shareholder owns more than five percent of shares, he or she becomes a substantial interest and thus has becomes liable for taxes on capital gains or dividends paid.
Public Limited Liability Corporation (NV): An NV is a corporation and owned by shareholders whereby shares are publicly traded on the stock market. An NV can only be created when it has at least €45000 paid in capital.
Besides these legal forms, there are several other legal forms such as a Foundation (Stichting), an Association (Vereniging), Cooperation (Cooperatie), and a Freelancer (ZZP). These legal forms are not really applicable for this thesis, so will not be explained thoroughly.
COMPANY STRUCTURE
The company structure, better known as organizational structure of a company “defines the scope of acceptable behavior within an organization, its lines of authority and accountability, and to some extent the organization’s relationship with its external environment”2. On a deeper level, organizational structure describes responsibilities and tasks of jobs. These can vary depending on the size of a company. An organizational structure of a large corporation is much more complex compared to that of a small business. Yet it is also important for small businesses to implement an efficient organizational structure because this will help making the business to reach its maximum potential in terms of productivity, efficiency, flexibility, and motivation. One must recognize that this might be a difficult task if the company is not operating yet. Often, the structure is created when a business already has been established.
As this thesis is about a small business, the following factors should be taken into consideration when creating an organizational structure.
“Relative strengths and weaknesses of various organizational forms.
Legal advantages and disadvantages of organizational structure options.
Advantages and drawbacks of departmentalization options.
Likely growth patterns of the company.
Reporting relationships that are currently in place.
2 Inc.com. (2013). Organizational Structure. Available:
http://www.inc.com/encyclopedia/organizational-structure.html. Last accessed 25th June 2013.
Reporting and authority relationships that you hope will be implemented in the future.
Optimum ratios of supervisors/managers to subordinates.
Suitable level of autonomy/empowerment to be granted to employees at various levels of the organization.
Structures that will produce greatest worker satisfaction.
Structures that will produce optimum operational efficiency.”3 COMPANY OPERATIONS
Company operations are what a company does to create value. To be more specific, what a company does with its assets to create value. These assets owned by the company can be both tangible and/or intangible assets.
Virender, S. states: “business operations encompass three fundamental management imperatives that collectively aim to maximize the value harvested from business assets, also known as "sweating the assets".
These are:
1: Generate recurring income
2: Increase the value of the business assets 3: secure the income and value of the business
Note that these three imperatives are mutually dependent on each other.”4
2.2 STRATEGIC ANALYSIS/PLAN
Strategic analysis and planning is part of strategic management, which can be identified as “the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.
The term strategic management is used synonymously with strategic planning.
The purpose of strategic management is to exploit and create new and different opportunities for tomorrow while long-range planning tries to optimize for tomorrow the trends of today.”5
What are the benefits of strategic management? The main benefit of strategic management is to help organizations to formulate better strategies. This is done by using a systematic approach to strategic decisions. It is very important that everything is communicated well, because through
3 Hillstrom, K (2002). Encyclopedia of Small Business. United States: Gale group
4 Poonia, S (2010). Production and Operations Management. Delhi: Gennext Publication. p32.
communication, you are able to achieve the commitment to change and implement a strategy, which will have great benefit to the company.
There are three stages of strategic management. These are: Strategy formulation, strategy implementation, and lastly, strategy evaluation.
Strategy formulation: Includes basic goal setting information. What is the company’s vision and mission? What are the company’s (long term) objectives? It is also about identifying the company’s strength, weaknesses, opportunities, and threats. Based on this information, a strategy, or multiple strategies are created, while looking not only internally, but also at the external environment.
Eventually one strategy has to be chosen to implement.
Strategy implementation: In order for a strategy to be implemented successfully, it is required that the firms short term objectives are aligned in such a way that the formulated strategy can be executed. Besides short-term objectives, other important elements are the company’s policies. If a company has policies that are not in line with the formulated strategy, it will be impossible for the company to implement the strategy successfully. Also, it is important that the company adopts a company culture that promotes goals and objectives needed to implement its formulated strategy.
Motivated employees are also important for this, because usually people are against change. If company employees are open for change, implementation of a (new) strategy will go much smoother.
Besides the elements just mentioned, there are many other elements such as, the correct way of allocating resources, the right marketing strategy, the right organizational structure, and the utilization of information systems.
Strategy evaluation: Strategy evaluation is the last stage, whereby measurements are conducted to see how the company is performing. This is done by reviewing the internal and external factors of the formulated strategy. When measurements have been conducted and evaluated, corrective action should be taken.
It is important to realize that because for this thesis, the company is a startup, it will not be possible to implement, and evaluate the business. Therefore only the strategy will be formulated.
STRATEGY FORMULATION
Vision, mission, and objective statements
(David, R. 2012), describes the vision, mission, and objective as following:
1. “Vision statements answer the question: “What do we want to become?”
2. Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” It addresses the basic question that faces all strategists:
“What is our business?” It should include the values and priorities of an organization.
3. Objectives can be identified as specific results that an organization seeks to achieve in pursuing its basic mission. Objectives are long term, which means more than one year.
They state direction, aid in evaluation, create synergy, reveal priorities, focus coordination, and provide a basis for effective planning, organizing, motivating and
controlling activities. Lastly, objectives should be challenging, measurable, consistent, reasonable, and clear.”6
Strategic analysis
Part of the strategy formulation entails to analyze the internal and external environment. To be more specific: The internal strengths and weaknesses of the company, and the external opportunities and threats.
Internal strengths and weaknesses: These are the controllable elements of a company that are either performed positively or negatively. The identification of a company’s strengths and weaknesses are a necessity and can be determined by comparing its performance with the industry, or by
comparing it to itself. When comparing to itself performance is measured by comparing by the goals the company has set for itself combined with what is important to the company (weights).
External opportunities and threats: external opportunities and threats are the external factors that could affect the company in either a negative or positive way. These factors are: Political, economic, social, technological, environmental, legal, and cultural factors. In contrast to the internal strengths and weaknesses, this is not controllable by the company. Therefore, strategic management is about creating a suitable strategy that reaps advantage of the external opportunities while at the same time reduces the threats the company may face.
There are several tools to determine a company’s internal strengths and weaknesses and its external opportunities and threats. First of all, the Dutch market will be analyzed. After that, the PESTEL analysis will be conducted to analyze the external environment. I will also analyze the industry using Porter’s five forces, to determine the industry’s profitability and attractiveness. Also, the strategic factor analysis summary model will be used to analyze the internal and external environment using weights and ratings to see where the company stands.
A competitor analysis will be made as well, to see how the competition stands in the Netherlands. To do this, I will select three of the main competitors, and use the SWOT analysis, and Porter’s generic strategies.
STRATEGIC PLAN
After this, the strategic plan can be formulated. The strategic plan is composed of a comprehensive business strategy where I focus merely on the business. This can only be done when all the necessary information is collected. Key terms in the strategic plan are: Market positioning, competitive
advantage and the company’s brand strategy
Market positioning: Market positioning is described as “how you want your customers to perceive your product or service in relation to their perception of your competitors and what marketing strategies you should adopt to reach this perceptual goal. In other words, what message about your product or service is your company trying to put across? And how will you do that? A market position will happen whether or not you are proactive, reactive or passive about the on-going process of developing and sustaining a market position. However, you can positively influence these
perceptions by developing and implementing deliberate market positioning strategies.
When developing a market position you need to select the most persuasive, meaningful and unique points of difference that will allow you to compete for the largest number of potential customers.
Developing a positioning strategy depends largely on how competitors position themselves. Some companies develop a 'me too' strategy and position themselves close to their competitors so prospects can make a direct comparison when they purchase. Other companies develop marketing strategies which position them well away from their competitors. Offering a benefit which is superior depends on the marketing mix strategy the company adopts. Your pricing strategy must reflect the benefit offered and your promotion strategy must clearly communicate this benefit.” 7
In short, it is all about what you as a company wants customers to think about the company.
Competitive advantage: A competitive advantage can be defined as something the company does exceptionally well, that sets itself apart from its competitors. A company cannot survive in the long-term if it does not have a sustainable competitive advantage. To sustain a competitive advantage, a company has to be able to change and adapt quickly to changes in the external environment.
Brand strategy: Why is building a brand strategy so important? It is all about creating a perception.
When a company has a strong brand, it has certain values it portrays to the outside world. People will then identify themselves with these values, which creates brand loyalty. Thus brands are able to influence customers.
A good definition about what brand strategy is about:
“In building brand value “perception is more important than reality” (Duncan and Moriarty. 1998), and as brands only exist in the minds of customers then the management of brands is all about the management of perceptions. The power of a brand to influence perceptions can transform the experience of using the product. In a double-blind trial, patients taking a branded analgesic perceived it to be more effective in treating pain than a chemically identical unbranded analgesic (Branthwaite and Cooper, 1981). In order to manage brands strategically we need to understand how perceptions are organized, how they influence behavior and how a brand can compete in the battle of
“mindspace” (Corstjens and Corstjens, 1995).”8
2.3 MARKETING PLAN
Marketing is an essential element to the success of any type of business. Marketing is the tool by which companies are able to create value for its customers. This is done by catering to the needs of the customer. So companies must differentiate themselves by the customer benefit their products or services provide. As companies have created value for their customers, they now want to capitalize on this. To remain successful, companies must find u sustainable way of keeping its practice of creating value for their customers and capitalizing on the value created. A marketing strategy is exactly this. Finding sustainable ways to create value and capitalize on this in the long-run.
In order to create a successful marketing strategy, it is essential that the target market is identified.
Everything revolves around the customer. This process is known as segmentation. Markets can be segmented in several ways. These are demography, geography and lifestyle.
7 Boldhorizon. (2013). Market Positioning. Available: http://www.boldhorizon.co.nz/market-positioning.php. Last accessed 26th June 2013.
8 Elliot, R (2007). Strategic Brand Management. New York: Oxford University Press. p4.
When the target customer is identified, it is then possible for the company to figure out their needs. And based on that, the marketing strategy can be formulated.
There are several tools that can help to create a marketing plan/strategy. This thesis will make use of the marketing mix to create a marketing strategy.
MARKETING MIX
There are many topics related to marketing. Think about pricing, branding, distribution channels, advertising, and packaging to name a few. This can all be categorized into the four p’s. These are
There are many topics related to marketing. Think about pricing, branding, distribution channels, advertising, and packaging to name a few. This can all be categorized into the four p’s. These are