PINNOCHIO CASE STUDY COMPETITION

SOCRATES – GROUP 13

Rohit Bhushan Kumar – 217KD Daksh Kumar – 72KB

Pranav Bandaru – 151KC Gaurav Kumar 74KB

Pranay Agarwala – 211KD Ravinoor Singh – 215KD

Utkarsh Gajbhiye – 108KB Shrestha Chopra – 102KB

Sahil Shende – 158KC V Anuradha – 109KB

FEASIBILITY

FEASIBILITY

Market conditions given in Case:

A) Market Share of various competitors
Business landscape Competitors Operation duration
Competition Market Share in the last two years origin in Indonesia
A 60% Rise in profits Indonesia 7 years
4 years (12 years
B 40% Decline in profits China overall)

B) Revenue and profit of competitors in this industry

Average profit margin on
Competition Annual Revenue revenue (last year)
A $600 million 30%
B $400 million 20%

Trend of Market Share of Company B

160000000
140000000
120000000
100000000
80000000
60000000
40000000
20000000
0
CY-2 CY-1 Current Year Next year

Revenue Growth %
FEASIBILITY

FEASIBILITY

Assumptions:
1. Assuming next year market share to be fixed at 40 % Assumptions:
2. Assuming Company B & our US client have a 1:3 revenue 1. Assuming next year market share to have increased to 60%
sharing partnership 2. Assuming Company B & our US client have a 1:3 revenue
3. US Client Invests 50 million USD towards the JV. sharing partnership
3. US Client Invests 50 million USD towards the JV.
1st Approach: JV (Case-1)
Major Heads Value
Next year revenue 140000000 1st Approach: JV (Case-2)
Major Heads Value
Expected market share of JV (Company B + US Client) 40%
Next year revenue 140000000
Total Expected Revenue 56000000
Expected market share of JV (Company B + US Client) 60%
US Client Revenue Factor 0.25 Total Expected Revenue 84000000
Total Expected Revenue of US Client 14000000 US Client Revenue Factor 0.25
Total Costs Incurred by US Client 5000000 Total Expected Revenue of US Client 21000000
Profit Margin of US Client 64% Total Costs Incurred by US Client 50000000
% of Market Share Captured by US Client in 1st year 10% Profit Margin of US Client 238%
% of Market Share Captured by US Client in 1st year 15%
Conclusion:
Conclusion:
The US Client is seeing considerablly high returns on his investment by
The US Client is seeing considerablly high returns on his investment by in
in this method he isn't able to capture the market share of 18-20%
this method he isn't able to capture the market share of 18-20%

Under favourable and resonable conditions the company fails to meets the 18-20 % target market share.
FEASIBILITY

FEASIBILITY

Assumptions:
1. Assuming next year market share to be fixed at 40 %
2. Assuming that the US Client acquires a minority stake of 40 % in Company B, and Company B continues to command a
market share of 40 %
3. US Client spends 180 against a 40 % equity of company B and 20 million as fees to IB

3rd Approach: Minority Acquisition

Major Heads Value
Next year revenue 140000000
Expected market share of JV (Company B + US Client) 50%
Total Expected Revenue 70000000
US Client Revenue Factor 0.4
Total Expected Revenue of US Client 28000000
Total Costs Incurred by US Client 2000000
Profit Margin of US Client 93%
% of Market Share Captured by US Client in 1st year 20%

Conclusion:
The US Client is seeing considerablly high returns on his investment of 93 % and is capturing a 20% Market share.

In this option the US Client is achieving both objectives of gaining a market share of 20 % and a
profit margin of greater than 18-20%.
 COSTS

COSTS

The possible costs that the US Based client can incur are as follows

SELLING , GENERAL AND

LEGAL COSTS OPERATING COSTS TECHNOLOGY COST
ADMINISTRATIVE COSTS
• Renting office space • Registration costs • Running Distribution • Server Cost- Deployment
pertaining to Centres and Warehouses of on-premise server or
• Hiring management incorporation of the buying a cloud server
company at Registrar of • Coordination with local provider
Companies vendors and retailers • Gateway Payment Cost-
• Staff training and
Ensuring integration of
workforce engagement
• Licenses and existing systems with
• Royalty payment of
Certifications to maintain ML-AI capability
logistic service provider.
quality standards • Domain Cost- Cost
incurred at getting a
• Legal fees local domain of
Indonesia
 COSTS

COSTS
High Level Split of the Total Cost ($50 Million)

Particulars Quantity Price Total

1. Distribution Centre 15000000

a. AI-ML Software 1000000
b. Software Integration and upgradation 500000
c. Built Automated Storage System Capability and Conventional
Warehousing Capability 8000000
d. Staff Management including hiring and training 2000000
e. Reserve for year around operations 3500000
TOTAL 15000000

2. Warehouse 4 1500000 6000000

3. Retrun Centres 2 1500000 3000000

4. Operating Costs 26000000

a. Government Taxes 2500000
b. Logistic Partner Royalties 5000000
c. Royalites to Payment Partner 2000000
d. Allocation towards warehouse upgradation of Company B 8000000
e. Reserves and other Expenses 5500000
f. Marketing and Advertising Expenses 3000000
TOTAL 26000000
50000000
 MODE OF ENTRY

MODE OF ENTRY

Joint Venture Acquisition Mergers

Lower risk
Joint venture exists when a compared to
Firms integrate their
company joins another non- develop new operations on a relatively co
national company for products equal basis to create a strong
common interest competitive advantage

Ownership and control Market share increase

Focus on and there is reduction of
are shared Increase
strategical competition
diversification
independence

Advantage of lower capital Strategic criteria and cultural

investment risk, lower risk fit creating higher economies
of return due to faster entry of scale
Avoid excessive
competition
 MODE OF ENTRY

MODE OF ENTRY
Offerings Made to Firm B Gains From Firm B

American Security: Infrastructure:

We would offer the reliable and global American brand name to firm Client can access the pre-established infrastructure of the firm B in
B. This would not only enhance the base but also provide a deep the country. This would save considerable amount of setup capital
connections outside Indonesia which they can leverage to look for needed to establish in new market.
cheaper or unique sellers and products across the globe.

Capital: Local Brand Equity:

As a US-based E-commerce giant we have a huge amount of capital to Entering into a new and hostile market for the outsider’s is not a cake
be pumped in various channels. Looking at the current situation when of walk. Thus, having local brand equity would be of great use in this
Company B is bleeding money, a giant E-commerce firm would act to condition for our client. Bringing in new American brands along with
be a saviour. local brand would bring easy trust for the consumers.

Global Company: Augment B’s Supply chain Network:

US-based E-commerce giant being a global company brings in various The Existing supply chain network of company B can be augmented by
benefits such as a strong and deep contacts across the world, scope Us-Based firm which would not only save the cost but also would cut
for expansion, access to international market and supply chain which down out preparation days needed to start our smooth operation in
can be leveraged by company B as and when required. the country.

Autonomy: Political Connections:

Us-based firm will bring in autonomy in various steps such as supply The political connections of Firm B can be leveraged by new entrant
chain, packaging etc. by introducing Artificial Intelligence and Machine i.e. U.S- Based firm for smooth entry to the country. This would also
Learning which would drastically drop the leakage in supply chain. provide U.S firm a base to build it’s own political connections further
deeper in the country.
 GO TO MARKET
STRATEGY

GO TO MARKET STRATEGY

Positioning
• Special focus on Fashion &
Beauty, Food & Personal Care and
Electronics segments as these How are we How To Reach
have immense market potential
different than The Customer
and are hugely imported. Robust What Are We
supply chain after acquisition the others Selling • Mobile application with
would allow to import these Target
Fast moving browsing options in
categories from nearby We are bringing
consumer goods and regional languages. Customer
countries(for example ASEAN) at international
less costs. standardized processes durables to be • Social media promotional
supplied at better activities through influencer Internet penetration stands
• Indonesia is a Muslim majority and automation to the
delivery times and programs at 60% of the entire
country, Halal Marketing strategy entire demand-supply
to leverage the widespread chain to reduce the prices to penetrate • Easy checkout using online population. Target
the market faster payment methods from the customers would be active
consumer attribute would expand operating costs mobile and social media internet users
the consumer base
applications
 BARRIERS TO
BARRIERS TO ENTRY
Lack of Infrastructure
Infrastructure, Channel of distribution and Physical
Presence would be difficult to acquire.
Country Risk
Indonesia has a country risk considering Political,
Socail and Economic conditions of Indonesia
doesn’t have high stability. contractual agreements
should be used in Indonesia, as Indonesia marked
by high risk of intellectual property violation
Cultural Factor
Considering the majority Population of Indonesia is
Muslim, Meaning there will be certain restrictions
as to abide by their religious Values.
ENTRY
Ease of Doing Business
Considering that Indonesian Government is not
condusive to Non-Indonesian Players entering into
the business, there will be imposition of Additional
Licensing, Tariffs and Legal requirements.
International Relations
Being an American Player, the international
relations between USA and INDONESIA must be
considered and currently their foreign relations are
Volatile and Sensitive.
Duopoly of existing players
There are already two Established Players in the
market, the size and the degree of competitiveness
between them is High.
 Recommend
ations

FINAL SET OF RECOMMENDATIONS

Advice the US Client to acquire a minority stake (approx. 40%) in Company B

Since company B is declining in profits and is evaluating its options for joint business operations. The US Client can use it’s reserve cash to aid the Company B which is bleeding in cash and giveit
the international edge over Company A.

Advice the US Client to Introduce Global Business Practices and Advanced Supply Chain Technology
The US Client can leverage its logistic solution deployed in USA and developed advanced supply chain solutions for the indoasian market. This will augment the existing supply chain of
company B.

Advice the US Client to Compliment Company B’s Product offering with Import from ASEAN to meet the
growing local demands
In Segments like fashion and apparal and electronics the demand is ever increasing and may not be satisfied by local demand, US client can develop international supplier network and get
products to the indoasian market to satisfy the demand.
THANKYOU!