Business Report for Jumpsports Shoes Pty Ltd

I.

Executive Summary
Jumpsports Shoes Pty Ltd has been manufacturing shoes in Australia for over

12 years. Their shoes are available in many major Australian shops. Nonetheless, their
management wishes to expand globally and enter the European market.
Currently, their debt to equity ratio has improved from 0.6 : 1 in 2006 (the industry
average in this particular year recorded the same ratio of 0.6 : 1) to 0.4 : 1 in 2007. The
same goes to their net profit ratio which has significantly grew from 27% in 2005 to 35%
in 2007 (the industry average is 24% in 2006). Moreover, their shoes are ranked as the
4th most popular sport shoe in Australia with every state being responsible for their own
marketing strategies. However, in Victoria, a major competitor has emerged, causing
Jumpsports Shoes Pty Ltd to lose its sales by 4% in Victoria.
This report will outline:
1. The methods of international expansion
2. The element of marketing that needs to be
assessed to improve sales in Victoria
3. The analysis of their current financial position and
an appropriate funding option to assist in their expansion
It is recommended that:
1. Jumpsports Shoes Pty Ltd undertakes basic credit
checks on its importers
2. Jumpsports Shoes Pty Ltd implement sales
promotion and relationship marketing nationwide
3. Jumpsports Shoes Pty Ltd maximizes its profits
II.

whilst minimizes its expenses

Discussion and Analysis
A. Methods of international expansion

A global expansion is to be accompanied by several strategies which may

include but not limited to exporting, relocation of production, and foreign direct
investment. While each of these strategies comes with its own pros and cons,
relocation of production and foreign direct investment are likely to cause
industrial disputes; hence, its best for Jumpsports Shoes Pty Ltd to implement
exporting strategy instead. With the further integration of globalisation in the
business world, a number of methods for international payment for exporting
purposes has been developed. These methods, which include payment in
advance, letter of credit, clean payment, and bill of exchange, proposes various
risk levels for differing party. As for Jumpsports Shoes Pty Ltd, who would most
likely act as an exporter, payment in advance would be the safest and most
beneficial option.
1. Payment in advance
In this particular method, money is to be transferred to the exporters
bank, which in this case is, Jumpsports Shoes Pty Ltd, before the goods
are shipped to minimize the risks for Jumpsports Shoes Pty Ltd.
B. Element of marketing that needs to be assessed
Marketing is the process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods, and services to create
exchanges that satisfy individual and organisational objectives. In general,
marketing comprises of seven elements (or more commonly referred to as 7ps):
product, price, place, promotion, people, physical evidence, and process. All of
these elements are essential in the making of good marketing plan and
strategies. However, in the case of Jumpsports Shoes Pty Ltd, promotion needs
to be especially assessed and fostered to assist it in overcoming new
competitors.

Promotion describes the methods Jumpsports Shoes Pty Ltd can use to
inform, persuade, and remind its target market about its products, aiming to
attract new customers and increase brand loyalty to increase sales, market
share, and eventually profit. There are several promotion methods that cater to
differing needs: advertising, personal selling, relationship marketing, sales
promotion, publicity, and so on. Out of all these methods, the methods that are
most relevant to the issues faced by Jumpsports Shoes Pty Ltd are relationship
marketing and sales promotion. Relationship marketing is the development of
long term, cost effective relationships with customers in the hope of developing
brand loyalty. This is attained through the creation of incentives to encourage
repeat sales. These benefits may include reward schemes such as loyalty card.
On the other hand, sales promotion refers to the use of activities or materials as
direct inducements to customers. This is used to entice new customers, retain
existing ones, and encourage trial purchases. This strategy may include the use
of coupons and premium. Both of these strategies will play a role in assisting
Jumpsports Shoes Pty Ltd regaining its loss of sales as a result of the
emergence of new competitors.
C. Analysis of current financial position and a suitable funding option
The debt to equity ratio of Jumpsports Shoes Pty Ltd which has
improved from 0.6 : 1 to 0.4 : 1 in a timespan of a year from 2006 to 2007 is of a
considerably ideal value. Moreover, the industry average of 0.6 : 1 in 2006
signifies that in terms of solvency, Jumpsports Shoes Pty Ltd is competitive
amongst its competitors.This ratio also means that for every 40c debted, the
owners of Jumpsports Shoes Pty Ltd are providing $1 of funds. Therefore, it is
safe to say that Jumpsports Shoes Pty Ltd is in a sound and solvent position as
it has a relatively low gearing.

Furthermore, as its net profit ratio rapidly improved from 27% to 35% from
2005 to 2007 whilst the industry average remained 24% in 2006, Jumpsports
Shoes Pty Ltd has been showing good performance in terms of profitability. In
2007, it is earning 35c of profit for every $1 of asset invested. This is a relatively
good indication; however, Jumpsports Shoes Pty Ltd can continue to improve its
profitability in the long run.
In the case of Jumpsports Shoes Pty Ltd, internal equity financing would
be the most appropriate funding option since it is an established business. Firstly,
equity financing refers to the owners contribution to the funding of the
business.This way, it does not have to be concerned over debt obligation issues
which may emerge as a result of the use of debt financing. Other than that, it
does not have to sacrifice the ownership and shares of the business. This can be
raised internally through retained profits.
III.

Conclusion and Recommendation

It is concluded that:
Jumpsports Shoes Pty Ltd can engage in the process of exporting and while doing so,
uses the international payment method of payment in advance in its hope of expanding
its business globally. It is also to assess its promotion strategies and stresses the use of
sales promotion and relationship marketing to cover the loss it incurred as new
competitors emerge. After a deliberate analysis, it is also safe to say that Jumpsports
Shoes Pty Ltd is in a sound, solvent, and profitable position, though it can still improve
its profitability in the long term. Looking at its stable financial position, internal equity
financing (retained profits) is the most suitable and beneficial option for Jumpsports
Shoes Pty Ltd.

It is recommended that:

1. Jumpsports Shoes Pty Ltd undertakes basic credit checks on its

importer
Even though payment in advance is an advantageous method for exporters, it is
also essential for Jumpsports Shoes Pty Ltd to undertake fundamental credit
checks on its importer to ensure its reliability and credibility; thus, avoiding any
problems that may arise in the future.
2. Jumpsports Shoes Pty Ltd enforce the implementation of sales
promotion and relationship marketing nation wide (not only in Victoria) to retain
its competitive position in the market
The implementation of these strategies should have a nationwide effect to avoid
similar problems happening in Victoria. This is to be done with the consent that
the implementation of these strategies in Victoria should be prioritized to avoid
further loss of sales.
3. Jumpsports Shoes Pty Ltd maximizes its profits and minimizes its
expenses to assist it in its expansion
Given that it is utilizing its retained profits for its global expansion purposes, it is
recommended that it maximizes its profits through the enforcement of marketing
strategies such as advertising and public relations to encourage sales that would
result in increase in profits. On the opposite end, it should also consider cutting
back its expenses such as waste, unemployed resources (e.g. employees),
electricity, and so forth. This can be attained through the implementation of JIT
strategy in which the production of excess shoes and waste is minimized and
avoided. This way, it can provide more funds for its global expansion.