Business Management HL IA Research Project May 2020

Teacher’s Comments on candidate’s work

Candidate Personal code: xxxxxxxxxxx

Criteria Marks Comments

awarded
Criterion A: Research proposal: 3/3
• Has the candidate presented the research proposal? Yes
• Is RQ forward-looking? Yes
• Is RQ specific in terms of function or measurable Yes - to increase profit
outcome or time period? margin
• Is the RQ relevant to the Bus Man syllabus? Internal growth-
opening a new factory
• Is the RQ targeted at an issue or decision to be made? Opening a new
factory to produce
steel coils
• Does the RQ allow to make recommendations for further Yes – feasibility of
action? opening a new factory
• Is the organization chosen appropriate for the IA? Yes
• Does the research proposal have all important elements? Yes- all present
o Research question (RQ)
o Rationale ( business related)
o Areas of syllabus to be covered
o Analytical tools to be used
o Sources of primary and secondary data
o Individuals and organizations to be approached,
o Anticipated difficulties and possible solutions
o Action plan/timeline
• Is the research proposal within the prescribed word limit Yes -497 words
(500)?
• Has the candidate mentioned the word count of the Yes
research proposal?
• Does the research proposal give effective direction for Yes
the project and become a primary planning document?
Overall - The research proposal with all the required elements is appropriate, detailed, clear
and focused.

Criterion B: Sources and data: 3/3

Does the research project have primary data? Yes- pages 11 to 16
Does the research project have secondary data to support the Yes, page 16
primary data?
Does the research project heave variety of primary sources Yes, three interviews
(interviews, surveys, observations, etc.)? and survey

Page 1 of 3
Has the candidate presented collected data using appropriate Yes, pages 12 -16
charts, graphs and statistics?
Are the primary sources selected and the data collected are Yes
appropriate, varied and sufficient to address the RQ?
Overall: The primary sources selected and the data collected are appropriate, varied and
sufficient.

Criterion C: Use of tools, techniques and theories: 3/3

Does the project have appropriate business management GPM an NPM page
tools, techniques and theories? 20,Ansoff matrix 21,
decision tree 23, FFa
page 25, investment
appraisal 26-27.
Has the candidate identified these tools in the ‘Methodology Yes
employed?
Are these business management tools, techniques and Yes
theories, and these skillfully applied?
Overall: There is a good understanding of relevant business management tools, techniques
and theories, and these are skillfully applied.
Criterion D: Analysis and evaluation: 4/6
Does the research project have a separate analysis and Yes
discussion section?
Has the candidate analyzed the data using tools and theories Yes
identified?
Is there is a skillful analysis of the results and findings, a Satisfactory analysis
coherent integration of ideas and consistent evidence of and integration of
substantiated evaluation? ideas
Overall: There is a satisfactory analysis of the results and findings, a satisfactory
integration of ideas and some evidence of evaluation.
Criterion E: Conclusions: 2 /2
Are conclusions presented in the main body of the report? Yes
Has the candidate summarized each tool used in the analysis Yes
and discussion?
Are the conclusions substantiated and consistent with the Yes
evidence presented in the main body of the report?
Overall: Conclusions are substantiated and consistent with the evidence presented in the
main body of the report
Criterion F: Recommendations: 1/2
Has the candidate answered the RQ in the recommendation Yes, the management
section? of SMPL ahs been
recommended to open
a new factory.
Are these recommendations consistent with the conclusions? Yes
Has the candidate identified the areas for further research? Yes, page 28
Has the candidate identified the costs and feasibility of the Not completely

Page 2 of 3
recommendations?
Overall: The recommendations are substantiated and consistent with the conclusions, and
they answer the research question but not effective enough to get 2 marks
Criterion G: Structure: 2/2
Has the candidate used appropriate business management Yes
language to present the argument?
Has the candidate presented various elements and tools Yes
with clear links?
Has the candidate organised his/her ideas into a structured Yes
report and the argument easy to follow?
Overall: Appropriate structure.
Criterion H: Presentation: 2/2
Does the report include all of the required components in the Yes, all present
correct order and format?
(Order of the research project: Title page, research proposal,
acknowledgements, table of contents, executive summary,
introduction, methodology, main results and findings,
analysis and discussion, conclusions, recommendations,
bibliography, appendix)
Are all the pages numbered? Yes
Is the title page complete in all respects? Yes
(Subject, examination session, RQ, word count details and
candidate personal code)
Has the candidate used appropriate font type font size, and Yes
line spacing?
Is the executive summary written in the appropriate tense? Yes
Is the executive summary clear and concise including Yes
conclusions and recommendations?
Is the executive summary within 200 words? Yes – 199 words
Criterion I: Reflective thinking: 1/2
Has the candidate reflected on the research and approaches Yes, page 9-10 and 28
taken?
Has the candidate questioned the validity of data, tools and Yes, but not
theories, etc.? completely.
Overall: Though the report includes appropriate evidence of reflective thinking on the
approach taken in this piece of research and its limitations, it is not completely effective to
get 2 marks.
Total 21/25

Page 3 of 3
 Business Management HL

Internal Assessment

Research Question: To what extent can opening a new

factory to produce steel coils be a successful internal growth

strategy for Sagittarius Metals Private Limited (SMPL)?

Exam Session: May 2020

Candidate Number: hyb949

Word Count:

Executive Summary – 199

Research Proposal – 497

Main Report – 1992

Page 1 of 39
 Research Proposal
Research Question:

To what extent can opening a new factory to produce steel coils be a successful internal growth

strategy for Sagittarius Metals Private Limited (SMPL)?

Rationale for the study:

Sagittarius Metals Private Limited (SMPL) is a steel coil processing company located in

Bangalore, India. The company manufactures steel coils and provides them as materials to

customers who are in require of the steel for making other products. Over the past 5 years, there

has been an increase in the sales revenue (20 %) and hence the management has been planning

to expand its business by opening a new production factory in Bangalore. This gives rise to the

research question which investigates and explores the feasibility of opening a new factory as

an internal business growth strategy.

Proposed methodology:

Areas of syllabus and analytical tools:

Topic Area of syllabus and analytical tools

SWOT analysis – to understand SMPL’s strengths,

1.3 – Organizational objectives
weaknesses, opportunities, and threats.
Ansoff matrix – to examine the growth strategies for
SMPL.
Decision tree – to analyse the possible benefits and costs
of the proposed change.
1.7 – Organizational planning tools
Force Field Analysis – to evaluate whether SMPL
should open a factory.
Payback Period – to evaluate the viability of opening a
new factory.
3.8 – Investment appraisal
Net Present Value – to calculate the possible returns on
this investment.
Profitability ratios – to understand the profitability of
3.5 – Accounting ratios
SMPL.
Primary and secondary research – using market
4.4 – Market research
research methods to collect information.

Page 2 of 39
Possible sources of information:

Primary Data Justification

Face-to-face interview with the directors
of SMPL
Interview with the finance manager
Interview with the production manager
Questionnaire to
• existing customers
• prospective customers
The purpose is to have an overall understanding of the
business and its performance over the years.
To know the financial status of SMPL.
To know the extent of current production and
estimated production due to the new factory.
These surveys will help understand the demands of the
present and prospective customers.

Secondary Data with Justification:

• Financial statements of SMPL (2013 - 2018): to analyse the financial position of SMPL

for quantitative data.

• Business Management textbooks: to understand and refer to relevant theories and

concepts.

• Industry-related websites: to know the demand of the industry.

Individuals and organizations to be approached:

• Directors of SMPL, Mr. Pramod R Baliga and Mr. Sanjay Nadgir.

• Finance and production managers of SMPL.

• Existing customers (approx.60)

• Prospective customers (approx.45)

Anticipated difficulties with possible solutions:

The directors and managers of SMPL may not give important information to maintain

confidentiality even though the purpose of the investigation would be explained. It will be

difficult to appoint interviews with the directors due to their busy schedules and should try to

schedule interviews in advance. Another major problem would be in understanding the

financial statements from the company as it is difficult to analyse real-life business financial

data. However, I will seek the help of SMPL’s accountants and my teacher for this.

Page 3 of 39
 Action Plan:

Actions Months
Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Read the BM guide and go through few sample IAs
Search for few organizations suitable for an IA
Choose the most suitable organization and meet the owner
Write the research question and research proposal
Conduct primary research
Conduct secondary research
Start the introduction and methodology
Complete the main research and findings
Analyse the primary and secondary data
Finish conclusions and recommendations
Submit the first draft
Work on feedback given
Submit final draft

Modifications made:

• The primary research was extended until September because it was time-consuming to

survey the customers.

• The analysis was completed in October because of the time constraint.

Word Count: 497

Page 4 of 39
 Acknowledgements
I take this opportunity to thank the directors of Sagittarius Metals Private Limited, Mr. Pramod
R Baliga and Mr. Sanjay Nadgir as well as the company’s managers to allow me to conduct
interviews and surveys to their customers.

This research would not have been possible without my business management teacher. I would
like to convey my heartfelt appreciation.

Page 5 of 39
 Table of Contents
Page

1. Executive Summary……………………………………................... 7

2. Introduction…………………………………………….................... 8

3. Methodology Emoloyed………………………............................... 9

4. Main Results and Findings…………………………....................... 11

• Primary Data............................................................................................. 11

• Secondary Data......................................................................................... 16

5. Analysis and Discussion……………………………….................. 18

• Summary of interviews............................................................................. 18

• Analysis of financial data.......................................................................... 19

• Ansoff Matrix............................................................................................ 21

• Decision Tree............................................................................................ 22

• Force Field Analysis................................................................................. 25

• Investment Appraisal................................................................................ 26

6. Conclusions and Recommendations...………………..................... 28

7. References and Bibliography…………………………................... 30

8. Appendices………………………………………………............... 31

Page 6 of 39
 Executive Summary
Looking at the financial statements of SMPL from the past 5 years, the sales revenue has

increased by 20% and hence, the company wishes to expand and increase its profit margin

which leads to the research question, “To what extent can opening a new factory to produce

steel coils be a successful internal growth strategy for Sagittarius Metals Private Limited

(SMPL)?”.

Primary data was collected through interviews with the directors and managers of SMPL

while secondary data was collected through the financial data provided by the company and

they revealed that the demand is increasing for the SMPL’s products.

Business tools like SWOT analysis, Ansoff Matrix, Decision tree, Force Field Analysis, and

Investment Appraisal were used to analyse the research question. Ansoff Matrix showed that

SMPL should use market penetration and market development growth strategies as a measure

of expansion and the expected returns calculated using the Decision tree indicates a higher value

for opening a new factory (INR 37,83,60,000). Based on SMPL’s analysis it is recommended

to open a new factory which would further increase sales revenue and profit margin.

Besides, the dynamic nature of the business environment was not considered and hence, further

research has been recommended.

Word Count: 199

Page 7 of 39
 1. Introduction
Sagittarius Metals Private Limited (SMPL) was started in the year 19961. It is involved in the

process of manufacturing steel coils. The services provided by them are cut to length line for

cold-rolled and coated steel, slitting line and other services such as offline lamination, precision

leveling, and max coil handling. The manufacturing is done based on specific orders received

from the customers through mail, phone calls or direct visits to the plant.

Looking at the increase in sales revenue (20%) over the past 5 years and the survey conducted

on the prospective customers2, Sagittarius Metals Private Limited is planning to take advantage

by opening a new factory to aid with its operations which leads to my research question (RQ)

“To what extent can opening a new factory to produce steel coils be a successful internal

growth strategy for Sagittarius Metals Private Limited (SMPL)?”.

1
Refer to Appendix 1: Interview with the Directors
2
Refer to Appendix 2: Questionnaire given to prospective customers

Page 8 of 39
 2. Methodology Employed
Primary research was mainly conducted through interviews with SMPL’s directors3, Mr.

Pramod Baliga and Mr. Sanjay Nadgir as well as the production and finance managers.

Questionnaires4 were given to existing and prospective customers so to understand their

perception of the company.

While secondary data was taken from the financial statements5 from the past 5 years to gauge

their financial status and business management textbooks —with information about business

concepts, tools and theories— and industry-related websites were used as a reference for the

analysis.

SWOT6 analysis was prepared to assess the strengths and the weakness while profitability

ratios7 were calculated to understand the financial position of SMPL. Other analytical tools

like Ansoff Matrix8 to consider different growth strategies and Decision tree9 to estimate the

profitability of the proposed change. Besides, Force Field Analysis10 — to weigh out different

options — and Investment Appraisal11 — to calculate the returns on the investment — were the

business tools used in this research.

Approaches to research process, data and tools (reflective thinking): Although I have

ensured the confidentiality of the data received from the company, the reliability and accuracy

3
Refer to Appendix 1: Interview with the directors and managers
4
Refer to Appendix 2: Questionnaires to existing and prospective customers
5
Refer to Main Results and Findings: Secondary data
6
Refer to SWOT analysis, page
7
Refer to Analysis of financial data, page
8
Refer to Qualitative analysis of growth using Ansoff Matrix, page
9
Refer to Quantitative analysis of growth using Decision tree, page
10
Refer to Force Field Analysis, page
11
Refer to Investment Appraisal, page

Page 9 of 39
of the research can be questioned as the directors and managers of SMPL would withhold some

information. The validity of the questionnaires can be opinionated as well. During the research,

there were changes made in the research question to ensure that it applies to the proposed

change of SMPL. Questionnaires for prospective customers had to be added to obtain sufficient

data and the sample size of the customers had to be increased for accurate results.

Page 10 of 39
 3. Main Results and Findings

Primary Data:

Interview with the Directors 12

A face-to-face interview was conducted with the directors to understand the overall

performance of SMPL. It aims to provide the best quality products and services to its

customers by ensuring that they cater to their specific needs and wants. They have well-

motivated staff and engage in activities that will let employees into the decision making. Due

to increase in sales revenue in the past 5 years, SMPL is considering to open a new factory.

Besides, they are concerned about the global slowdown that the market is facing. Moreover,

60% of SMPL’s customers are from the automobile industries and in recent years, government

is planning to introduce electric vehicles which pose a threat to SMPL.

Interviews with the finance and production managers 13

Interviews with the finance and production managers were organized to assess the financial and

production status. The sales revenue has been increasing (20%)14 and they wish to invest in

new equipment worth 1.5 crores for expansion. Currently, the company processes around 400

metric tonnes of steel coils everyday. They have reduced the labour from 140 workers to

around 70 workers and increased the machinery along with upgrading the old equipment for

better speed and productivity.

12
Refer to Appendix 1: Interview with the Directors
13
Refer to Appendix 1: Interviews with the managers
14
Refer to Analysis of Financial data, page

Page 11 of 39
 Questionnaire given to existing customers15

1) For how long have you been a customer of Sagittarius Metals Private Limited?

For how long have you been a customer of Sagittarius Metals Private
Limited?

5 years or more 20.00%

3 years - 5 years 33.30%

Time

1 year - 3 years 13.40%

6 months - 1 year 13.40%

Less than 6 months 20%

0% 5% 10% 15% 20% 25% 30% 35%

Percentage

Graph 1: Questionnaire given to existing customers, Question 1

2) How satisfied are you with their service in terms of meeting deadlines?

SMPL's Service

5%
20%

75%

Very Satisfied Somewhat Satisfied

Graph 2: Questionnaire given to existing customers, Question 2

15
Appendix 2: Questionnaire to existing customers

Page 12 of 39
3) How often do you ask for service from SMPL?

How often do you ask for service from SMPL?

45.0%
40.0%
35.0% 40.0%
PEERCENTAGE

30.0%
25.0%
26.7%
20.0%
15.0% 20.0%
10.0% 13.3%
5.0%
0.0%
once a month once in 3 once in 6 no fixed time
months months
TIME

Graph 3: Questionnaire given to existing customers, Question 4

4) To what extent does SMPL meet your overall expectations regarding the material quality and

service?

OVERALL EXPECTATION

POOR 0%

AVERAGE 6.70%

GOOD 46.70%

EXCELLENT 46.70%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00%

Percentage

Graph 4: Questionnaire given to existing customers, Question 5

Page 13 of 39
Questionnaire given to prospective customers16

1) Who is your current supplier?

Who is your current supplier?

Others TTSSI
29% (Toyota)
33%

Posco HYSCO
Steel (Hundia
25% steel)
13%

Graph 5: Questionnaire given to prospective customers, Question 1

2) To what extent does your current supplier meet your overall expectations regarding the
material quality and service?

OVERALL EXPECTATION
50% 46%
45%
40% 37%
35%
Percentage

30%
25%
20%
15% 12%
10%
5%
5%
0%
Excellent Good Average Poor
Graph 6: Questionnaire given to prospective customers, Question 2

16
Appendix 2: Questionnaire to prospective customers

Page 14 of 39
3) What are your opinions on the pricing of your current supplier?

PRICING

Can be priced higher

Well price

Acceptable price

Over price

0% 10% 20% 30% 40% 50%

PERCENTAGE
Graph 7: Questionnaire given to prospective customers, Question 3

4) How have you come to know about SMPL?

How have you come to know about SMPL?

Newspaper 0.0%

Word of mouth 40.0%

Method

Website 13.7%

Self-aware 46.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Percentage

Graph 8: Questionnaire given to prospective customers, Question 4

Page 15 of 39
5) Are you looking for new/alternative suppliers?

Are you looking for new/alternative suppliers?

6.70%

13.30%
Yes
13.30%
No
Maybe in the future
66.70% No idea

Graph 9: Questionnaire given to prospective customers, Question 5

Secondary data:

Sales Revenue, Cost and Profit for 5 years

Year Sales Revenue Cost of Goods Gross Profit Overhead Net

(INR) Sold (INR) (INR) Expenses Profit
(INR) (INR)
2013-2014 5,34,17,791 74,00,164 4,60,17,627 3,89,53,072 70,64,555

2014-2015 7,90,43,819 1,09,79,274 6,80,64,545 6,25,83,516 54,81,029

2015-2016 7,60,14,434 1,26,48,981 6,33,65,453 5,35,05,994 98,59,459

2016-2017 5,12,12,959 52,69,900 4,59,43,059 4,44,53,958 14,89,101

2017-2018 6,39,38,322 66,02,971 5,73,35,351 5,41,51,376 31,83,975

Table 1: Secondary data – Sales Revenue, Cost and Profit

Page 16 of 39
 Summary of Financial Statements
9,00,00,000

8,00,00,000

7,00,00,000

6,00,00,000
AMOUNT (INR)

5,00,00,000

4,00,00,000

3,00,00,000

2,00,00,000

1,00,00,000

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
Sales Revenue (INR) 5,34,17,791 7,90,43,819 7,60,14,434 5,12,12,959 6,39,38,322
Cost of Goods Sold (INR) 74,00,164 1,09,79,274 1,26,48,981 52,69,900 66,02,971
Gross Profit (INR) 4,60,17,627 6,80,64,545 6,33,65,453 4,59,43,059 5,73,35,351
Overhead Expenses (INR) 3,89,53,072 6,25,83,516 5,35,05,994 4,44,53,958 5,41,51,376
Net Profit (INR) 70,64,555 54,81,029 98,59,459 14,89,101 31,83,975
Graph 5: Secondary data – Sales Revenue, Cost and Profit

Key findings from websites

• The global economy is experiencing a slowdown that can affect SMPL.17

• The Indian government is planning to introduce electric cars18 which can also negatively

affect SMPL.

17
https://blogs.imf.org/2019/10/15/the-world-economy-synchronized-slowdown-precarious-outlook/
18
https://economictimes.indiatimes.com/industry/auto/auto-news/government-plans-new-policy-to-promote-
electric-vehicles/articleshow/65237123.cms?from=mdr

Page 17 of 39
 4. Analysis and Discussion
Since this research is to investigate the feasibiltiy of opening a new factory, it is necessary to

analyse to what extent does the primary data support the research question.

Summary of interviews:

SMPL is recognized for its quality and service to its customers that forms the basis for its

strong brand image in South India. They improve their relations with the customers by

providing more services so that they gain brand loyalty. They motivate their staff by

allowing them to analyse the problems faced during the processing. However, to increase

processing of steel, SMPL has implemented redundancies in labour which can demotivate

the present staff.

Huge demand for steel coils in the automobile industry provides an opportunity to increase the

profit margin. Moreover, if SMPL opens a new factory, the increased productivity and faster

service can attract new customers. 60% of the customers are from the automobile industry

and as the Indian government is planning to introduce electric vehicles it might reduce the

processing by about 80%. Plus, the global slowdown affects the company negatively as the

work is reduced.

Page 18 of 39
 Analysis of Financial Data:

Year 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Sales Revenue (INR)

5,34,17,791 7,90,43,819 7,60,14,434 5,12,12,959 6,39,38,322
Cost of Goods Sold (INR)
74,00,164 1,09,79,274 1,26,48,981 52,69,900 66,02,971
Gross Profit (INR)
4,60,17,627 6,80,64,545 6,33,65,453 4,59,43,059 5,73,35,351
Gross Profit Margin (%)
86 86 83 90 90
Overhead Expenses (INR)
3,89,53,072 6,25,83,516 5,35,05,994 4,44,53,958 5,41,51,376
Net Profit (INR)
70,64,555 54,81,029 98,59,459 14,89,101 31,83,975
Net Profit Margin (%)
13 7 13 3 5
Table 2: Gross Profit Margin (GPM) and Net Profit Margin (NPM)19

Sales Revenue and Overhead Expenses

9,00,00,000
8,00,00,000
7,00,00,000
Amount (INR)

6,00,00,000
5,00,00,000
4,00,00,000
3,00,00,000
2,00,00,000
1,00,00,000
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
Sales Revenue (INR) 5,34,17,791 7,90,43,819 7,60,14,434 5,12,12,959 6,39,38,322
Overhead Expenses (INR) 3,89,53,072 6,25,83,516 5,35,05,994 4,44,53,958 5,41,51,376
Graph 6: Sales Revenue and Overhead Expenses (INR)

19
Appendix 4: Calculations of profitability ratios

Page 19 of 39
 GPM AND NPM
92 14

90 12
Percentage (%)

88 10

Percentage (%)
86 8

84 6

82 4

80 2

78 0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
GPM(%) 86 86 83 90 90
NPM(%) 13 7 13 3 5

Graph 7: Gross Profit Margin (GPM) and Net Profit Margin (NPM)20

The financial data shows that the sales revenue has increased over the past 5 years (INR

5,34,17,791 to INR 6,39,38,322) by 20% even though the rate of increase has been fluctuating

in years 2013 – 2015 where there was an increase of 48% and significant decrease of 33% in

the following years 2015 – 2017. This indicates that the sales revenue has been decreasing along

with an 39% increase in the overhead expenses.

Moreover, GPM has increased by 4% in 2013 – 2018 although there was a decrease in 2015 –

2016. The NPM has been fluctuating showing an overall decrease of 62%, indicating that the

overhead expenses of the company had increased greatly in the past 5 years resulting in

declining rate of increase in sales revenue.

However, accounting ratios do not consider the external factors that could have affected SMPL

like the global slowdown and a shift from gasoline vehicles to electric vehicles which can

significantly reduce the sales for SMPL, and qualitative factors such as motivation of the

20
Refer to Appendix 4: formulas and calculations of the financial ratios

Page 20 of 39
employees and communication between the organization that could affect the financial

performance.

Qualitative Analysis of growth using Ansoff Matrix:

PRODUCT
Considered Strategy EXISTING NEW

Product
EXISTING Market Penetration
MARKET

Development

NEW Market Development Diversification

Diagram 1: Ansoff Matrix21

Another Possibility

Ansoff Matrix is a strategic planning tool that aids a business to consider various options for

future growth, in terms of four expansion strategies.

SMPL is planning to open a new factory that can be considered as a market penetration

strategy wherein the new factory will increase the number of steel coils produced (existing

product) and in turn, increase the volume of sales for their customers (existing market). This

approach would attract repeat customers as more steel coils are manufactured at a faster rate,

increasing brand loyalty and ensuring that better services are provided. This is a low-risk

strategy as the focus is on the market they are familiar with and in this industry, recognition of

the steel coils is necessary to ensure brand loyalty.22

However, focusing on the existing product can limit opportunities for increasing market share

as the competitors can retaliate by opting for more aggressive strategies.

21
Diagram reference – Paul Hoang, Business Management
22
Refer to Appendix 1: Interview with the directors

Page 21 of 39
 Another possibility is market development strategy where SMPL can expand their existing

product (steel coils) into North Indian states like Gujarat (new market) to increase their market

share but transportation of steel coils can be a limitation.

Ansoff Matrix will help SMPL to understand different expansion strategies for the company’s

growth, but this just provides an overview of SMPL’s options and doesn’t consider quantitative

data to provide a solution.

Quantitative Analysis of growth using Decision Tree:

Options Cost Probability Estimated Probability Estimated

of Success Revenue – of Failure Revenue –

Success Failure

Opening a new INR 0.6 INR 0.4 INR

factory 4,65,00,000 53,83,00,000 25,47,00,000

Continue with INR 0.3 INR 0.7 INR

existing factory 87,00,000 39,68,00,000 19,00,00,000

Table 3: Data for decision Tree Diagram

Note: Data for decision tree are estimates given by finance manager of SMPL.

Page 22 of 39
 Diagram 2: Decision Tree

Key:

Probability Node Note: Currency – Indian Rupees (INR)

Decision Node

Rejected Option

Options Working Expected Value(INR)

Opening a new factory [53,83,00,000*0.6 + 25,47,00,000*0.4] – 4,65,00,000 37,83,60,000

Continue with existing factory [39,68,00,000*0.3 + 19,00,00,000*0.7] – 87,00,000
24,33,40,000
Table 4: Calculations of Expected Values

Page 23 of 39
Decision Tree is a quantitative decision-making tool where businesses can have a diagrammatic

representation of different options available and their probable outcomes. Decision Tree shows

that it is more profitable to open a new factory even though the cost (INR 4,65,00,000) is

greater, it is expected to yield higher returns (INR 37,83,60,000) with a higher probability of

success (0.6). Whereas the second option would yield lower returns (INR 24,33,40,000) due to

the higher risk of failure (0.7) although the cost is lower (INR 87,00,000). Therefore, the

recommended choice would be to open a new factory financially.

However, data for the decision tree is estimated and may not be accurate. Besides, qualitative

factors should be taken into account when making a decision. SMPL needs sufficient liquidity

to invest such a large sum in opening a new factory without compromising on its daily

problems.

Page 24 of 39
 Force Field Analysis:

Driving Forces Restraining Forces

Increase sales revenue and High cost in opening a new

4 5
profit margin factory

Faster service to the Takes time to find a suitable

3 4
customers location
Proposed
Change

Increased equipment results Increase in transportation

5 3
in better quality steel coils costs

Should SMPL
open a new
Increases number of factory? Requirement of employees
4 2
customers for management

Total Points: 16 Total Points: 14

Diagram 3: Force Field Analysis

Note: Values are assigned based on information collected in the interviews.

Opening a new factory will help boost sales revenue and provide faster service with better

quality products, an objective of the company23, due to the increased processing of steel coils.

This will increase the number of repeated customers. However, the company will face high

costs for infrastructure (factory) and transportation (steel coils). SMPL has been trying to reduce

23
Refer to Appendix 1: Interview with the Directors

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labour24 but opening a new factory will result in requirement of more labour and employees.

Also, it is time-consuming to choose an appropriate location for the factory.

Analysis demonstrates that the driving forces (16) exceed restraining forces (14) and hence,

SMPL should open a new factory. But, all the data for the analysis is based on the directors’

opinions, not facts, and can be biased.

Investment Appraisal:

SMPL plans to invest in the purchase of new equipment as a measure to expand their business.

Payback Period:

Initial investment: INR 1,50,00,00025

Estimated annual cash flow: INR 31,85,400

1,50,00,000
= 4.71 𝑦𝑒𝑎𝑟𝑠
31,85,400

The payback period shows that the investment will be paid back in 4.71 years. The annual cash

flow is only estimated and can be affected by unexpected changes in demand.

24
Refer to Appendix 1: Interview with the production manager
25
Refer to Appendix 1: Interview with the finance manager

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Net Present Value:

Year Net Cash Flow (INR) Discount factor at Present Value (INR)

8%26

0 1,16,73,140 1 1,16,73,140

1 1,49,57,127 0.9259 1,38,48,803.89

2 2,51,44,345 0.8573 2,15,56,246.97

3 2,30,18,012 0.7938 1,82,71,697.93

4 2,74,17,534 0.7350 2,01,51,887.49

Total 8,55,01,776.28

Table 5: Calculations of Net Present Value

Net Present Value: 85501776.28 – 1,50,00,000 = INR 7,05,01,776.28

Note: As per the interest rate forecast, the discount factor was decided at 8%.

As NPV shows a positive value (INR 7,05,01,776.28), SMPL should go ahead with their

decision of opening a new factory as the revenue from investing on new equipment shows that

it would help the business with its growth. Yet, SMPL shouldn’t rely on NPV figures as interest

rates could rise, reducing the estimated value.

26
Appendix 4: Discount table

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 5. Conclusions and Recommendations
My research question states: “To what extent can opening a new factory to produce steel

coils be a successful internal growth strategy for Sagittarius Metals Private Limited

(SMPL)?”.

Conclusions:

Having completed the analysis, it can be concluded that SMPL will benefit from market

penetration and market development (Ansoff Matrix) as these are low-risk strategies where the

existing product (steel coils) is sold which is familiar to customers and employees. The

profitability ratios show that even though there is an increase in sales revenue (20%), the rate

of increase is declining. As per Decision tree, opening a new factory is the better option as it

has higher expected returns (INR 37,83,60,000). The Force Field Analysis demonstrates that

driving forces outweigh restraining forces and hence, the new factory will increase the profit

margin. Through investment appraisal, it can be inferred that payback period is within 5 years

and there is an estimated positive value of Net Present Value.

Recommendations:

Form the above analysis and conclusion conducted, the answer to my research question is that

I recommend Sagittarius Metals Private Limited to consider opening a new factory as an

internal growth strategy as it will stimulate an increase in the sales revenue and profit margin.

Areas for further study

• Implications on the other business departments (HR, Finance, Marketing mix) can be

analysed.

• The decision on the location of the new factory can be analysed and discussed.

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Limitations and Reflective thinking

Information from the interview can be withheld as the Directors may not wish to reveal

confidential data. The questionnaire was given to a limited sample of customers (can be

opinionated). The business tools used in this analysis are theoretical and may not be applicable

to real-world businesses for instance, decision tree, whose values are estimated and hence, the

expected returns are just predictions, and investment appraisal for which NPV’s discount factor

is 8%, based on current data but as the external environment is always changing, these tools

may not be reliable.

Word Count: 1992

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 6. References and Bibliography
Online Resources:
• IMF Blog. (2019). The World Economy: Synchronized Slowdown, Precarious
Outlook. [online] Available at: https://blogs.imf.org/2019/10/15/the-world-economy-
synchronized-slowdown-precarious-outlook/ [Accessed 21 Nov. 2019].
• Singh, S. (2019). Government plans new policy to promote electric vehicles. [online]
The Economic Times. Available at:
https://economictimes.indiatimes.com/industry/auto/auto-news/government-plans-
new-policy-to-promote-electric-vehicles/articleshow/65237123.cms?from=mdr
[Accessed 21 Nov. 2019].
• Statista. (2019). Inflation rate in India 2010-2024 | Statista. [online] Available at:
https://www.statista.com/statistics/271322/inflation-rate-in-india/ [Accessed 21 Nov.
2019].

Books:
• Hoang, Paul. Business Management. 3rd edition, Victoria, Australia: IBID, 2014. Print.
• Lominé, Loykie, et al. Business Management . 2014th ed., Oxford University Press,
2014.

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 7. Appendices

Appendix 1:

• Interview with the directors

1. Could you give a brief overview of your company?

We started our company in 1996. And frankly speaking, our experience in the line
was zero. We started it because we wanted to diversify. Basic rule is, what we thought
is invest less there will be more competition, invest more and there will be less
competition. So, we had to stretch our hand to go into a higher investment and since
we were in steel, we went into steel processing. That is how we have started.

2. So, you wanted to diversify from which market?

We were into trading. But we wanted to expand into steel processing.

3. What has your growth been in the past 5 years?

On average, maybe about 20% - 25%.

4. What is the growth strategy you are planning to impose?

We have to do 2 things constantly. We have to upgrade our machines and add value to
our product. We are basically processors. We don’t buy and sell. When we do
processing, we have to get closer to our customers. This adding value to your product
takes you closer to your customer. Now value addition, how much of value addition
you ask, I define it as to taking customers headache. Give more services. If he feels
that it’s difficult to transport the good to his place, we take that responsibility. And
that becomes added value for me. Generates revenue for me. More than customer
satisfaction, I’m getting closer to him. My business is to earn revenue; hence I keep
on adding revenue to that through my service.

5. What are the strengths that make your company stand out?
Quality and service. Commitment to the service. Quality has to be 100%. As well as
the service. If the product has to be ready by 3.00 it has to be received by the
customer at 3.00. We have grown and people recognize us only because of
commitment, quality and service. We have a really good brand image in South India
as well.

6. How do you maintain your quality?

Once a week, I have a meeting with the workers so as to assess the problems faced
during the production. We follow the 4 M’s (machine, manpower, method, material)
and let the workers analyze the problem and how to rectify it.

7. What are the opportunities for your company currently?

Opportunities in businesses are many. It all depends on capacity of investment. It
depends on what you want to do and how much finance you can generate. Today, at
present we have shelfed down all the further investments due to the slowdown. When
the slowdown is there, major amount of your profits goes into interest to the bank.
Now we have to reduce maximum interest going into the bank and keep it to

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 ourselves. Otherwise, growth wise, if you had asked me this question 4 months back,
automobile industry was doing very well and we are into automobile by making some
press products and try to give them more value addition. But at present we have
shelfed down everything.

8. What are the factors that pose as threats to your company?

Global slowdown is the major thing. Another thing is that 60%-70% of our processing
is for automobile industry. Now, government is thinking of electric vehicles for
pollution control. For normal vehicles, in 1 car, if there are about 1500 components,
in electric vehicles there will be only 300 components. This is a threat. But at present,
electric vehicles are expensive and only few people can afford it. Second, the
infrastructure in the country is not capable to handle electric vehicles, so we have to
get going as we are. There is no infrastructure for charging. Another problem is that
people will have to wait for the car to charge if there is availability of charging points.

9. What are the areas your company has to improve upon? And how?
See, quality level in India is going higher and higher. We have to be best in the
quality. If the quality has to be the best then our processing will need improvements
every day. It is a hard thing to achieve. Creating awareness in our staff and operators
has to keep on improving because they are the ones who maintain the work and also
inform them that quality is the heart of our business. Another improvement we have
to do is reduce labor. To reduce labor, we have to invest in machines and they are
expensive. We have started the process and we have reduced man force and outgiving
to labor but it is an ongoing process. It is going to be a continuous improvement. We
had about 140 workers at one time. Today we have about 65-70 and our revenue has
increased. Our industry is based on heavy metals. Hence to lift one unit, we require 4-
5 people. But if there is a crane, it is faster, easier and safer. But we still need people
for visual inspection.

10. What do you think is the most appropriate strategies for your future growth?
Our growth goes on how advanced we are in our technology and that technology
takes us far ahead. We have to implement high grade technologies whether it is in our
leveling or laser-cutting. And return on investments earlier used to be 3-4 years and
we can never think about it now because the return on investments has to be 7 years
now. 3-4 years is not possible now. Investment on machinery is there, but we have to
go into high grade machines which is very expensive. But the life expectancy and
future usability is longer.

11. How do you plan on attracting potential customers?

Quality, service and commitment. Anywhere today, especially in the service sector, it
is the commitment, quality and service. Frankly speaking, we have never advertised
our company till today. It is only through word of mouth. We have customers from
Chennai, Hyderabad and Pune also. All through word of mouth. The advertisement
we do is that we go to the customer and ask him what more he needs from us and
make him more reliable on us and depend on us. The more the customer depends on
us, the bonding will be stronger. See when you have customers, you have customers
who are delicate where he might get away if he finds another person who does work
for a cheaper price. Hence, we have to make our customer aware that even in hard
days and even in strong days you are with them, giving them better quality and have a
good bond. Understanding the customer’s problem. Retaining the customers is the

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 biggest problem today. People usually advertise to get new customers because they
cannot retain the present customers. If you can retain the present customers you don’t
need the new customers.

12. What is the profile of the common customers of Sagittarius Metals Private Limited?
They are into automobile, white goods like refrigerators, washing machines, and
control panels, radiator industries and electrical in which 60% is from automobiles.

13. Who are your competitors? And how do you differentiate yourself from them?
Biggest competitor I have in Karnataka is Toyota. There are about 20-25 people who
are in the same business. We are deferent from our competitors through the quality
and service we provide as well as value addition.

• Interview with the finance manager

14. How have the sales revenues been recently?

Last year we have 50% more than earlier years. 20%-25% from past 5 years but last
year we have done 50% increase in the sales revenue.

15. How much have you invested in buying the new equipment?
We have invested about 1.5 crores for the new equipment.

16. What are the prospective costs and returns of investing in the new equipment?
It should take me about 4-5 years. We aim for 7 years but hopefully it will take about
4-5 years.

17. How do you plan on receiving the returns for how much you have invested?
Machineries are put to reduce labor and increase the speed. We have reduced
manpower which reduces the cost and the revenue has increased. Capacity of the
machines have increased. The same machines are there but they have been upgraded
to increase the production.

18. What is your pricing strategy for your customers?

First, we should know how much it costs us. The break-even and costing has to be
done. Then, we have to analyze how much we are earning and what it costs us. The
machinery cost, the area of the machine, the labor cost, the energy cost, overhead
costs and the fixed costs have to be considered. If the customers give us more work,
the price for them reduces. More the work, the job will be repetitive hence the cost
and time reduces. When there is repetitive work, our manpower work comes down.
The time and cost reduce so the good can be given at a better price.

19. How do you expect the expansion to affect your total revenues and profit margins?
Expansion is basically done for survival. As I told you in the beginning, there are 2
things. Unless we invest we cannot be in the market. So, there is the value addition.
We have to upgrade ourselves and keep on improving. It is only then we will survive.

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• Interview with the production manager

20. What is the area (sq ft) of your current factory?

It is around 60000 sq ft.

21. Is there enough space around the factory if you are considering extending your
factory?
There was space but we have already extended hence to expand further, we will have
to move out.

22. How old are your current equipment and how many do you have?
We have a number of equipment and we already upgraded them. The oldest is around
13-14 years old. The oldest one we had paid for the equipment it was around 10 lakhs
and today, if I want to upgrade it, it will cost me around 18 crores. Hence, we have
shelfed it down until the market improves.

23. What is the productivity of each equipment and how long can you run it in a day?
It depends. We process around 400 metric tonnes every day. We have 20-25
machines. We can run 24 hours but I don’t. We used to do 12 hours from 9.00 in the
morning to 9.00 in the evening. But because of the slowdown we do only 8 hours.
Ours is heavy equipment. Little negligence will result in an accident which is why
safety is a prime concern for us. We would not like to open our first aid box at all.
Our aim is to ensure that we provide a safe environment for our workers.

24. How many workers do you have?

At present we have 70 workers. We have reduced from 140 workers. Among 70,
workers are about 55, remaining are administration staff, supervisors and managers.

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 Appendix 2:

Questionnaire given to existing customers

1. For how long have you been a customer of Sagittarius Metals Private Limited?
• Less than 6 months
• 6 months - 1 year
• 1 year – 3 years
• 3 years – 5 years
• 5 years or more
2. How satisfied are you with their service in terms of meeting deadlines?
• Very satisfied
• Somewhat satisfied
• Not satisfied
3. What do you think in terms of SMPL’s credit periods?
• Flexible
• Not flexible
4. How often do you ask for service from SMPL?
• Once a month
• Once in 3 months
• Once in 6 months
• No fixed time
5. To what extent does SMPL meet your overall expectations regarding the material
quality and service?
• Excellent
• Good
• Average
• Poor

Questionnaire given to prospective customers

1. Who is your current supplier?

• TTSSI (Toyota)
• HYSCO (Hundia steel)
• Posco Steel
• Others
2. To what extent does your current supplier meet your overall expectations regarding
the material quality and service?
• Excellent
• Good
• Average
• Poor
3. What are your opinions on the pricing of your current supplier?
• Over price
• Acceptable price
• Well price
• Can be priced higher

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 4. How have you come to know about SMPL?
• Self-aware
• Website
• Word of mouth
• Newspaper
5. Are you looking for new/alternative suppliers?
• Yes
• No
• Maybe in the future
• No idea

Response to the questionnaire given to existing customers

For how long have you been a customer of Sagittarius Metals Private Limited?

Less than 6 6 months - 1 1 year – 3 3 years – 5 years: 5 years or

months: 20% year: 13.3% years: 13.4% 33.3% more: 20%

How satisfied are you with their service in terms of meeting deadlines?

Very satisfied: 75% Somewhat satisfied: 20% Not satisfied: 5%

What do you think in terms of SMPL’s credit periods?

Flexible: 90% Not flexible: 10%

How often do you ask for service from SMPL?

Once a month: 13.3% Once in 3 months: Once in 6 months: No fixed time: 40%
20% 26.7%

To what extent does SMPL meet your overall expectations regarding the material quality and
service?

Excellent: 46.7% Good: 46.7% Average: 6.7% Poor: 0%

Response to the questionnaire given to prospective customers

Who is your current supplier?

TTSSI (Toyota): 33% HYSCO (Hundia steel): Posco Steel: 25% Others: 29%
13%

To what extent does your current supplier meet your overall expectations regarding the material
quality and service?

Excellent: 12% Good: 37% Average: 46% Poor: 5%

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 What are your opinions on the pricing of your current supplier?

Over price: 40% Acceptable price: 40% Well price: 15% Can be priced higher: 5%

How did you come to know about SMPL?

Self-aware: 46.3% Website: 13.7% Word of mouth: 40% Newspaper: 0%

Are you looking for new/alternative suppliers?

Yes: 66.7% No: 6.7% Maybe in the future: 13.3% No idea: 13.3%

Appendix 3:

SWOT Analysis

Strengths Weaknesses

• Known for quality of the products.27 • Removal of employees will

• Strongly committed to their service. demotivate staff.

• Strong brand image in South India. • More emphasis must be given to

• Well motivated staff. maintaining quality.

• Customer satisfaction through value

addition.

• Have customers from places like

Chennai, Hyderabad and Pune.

27
Appendix 1: Interview with the Directors

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 Opportunities Threats

• Increase of goods in automobile • Global slowdown will affect the

industry. SMPL negatively.

• If it opens a new factory, there will • Shift from gasoline vehicles to

increased production, resuting in electric vehicles can reduce the

more reliablity in automobile sector work for SMPL.

and can be approached often.

Appendix 4:

Financial ratios

𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
Gross Profit Margin = × 10
𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒

4,60,17,627
2013-2014: 5,34,17,791 × 100 = 86%

𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑡𝑎𝑥

Net Profit Margin = × 100
𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒

70,64,555
2013-2014: 5,34,17,791 × 100 = 13%

The same calculation was repeated for other years.

Appendix 6:

Investment Appraisal

𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡

Payback Period =
𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑓𝑟𝑜𝑚 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

Net Present Value = total present values – original cost

Page 38 of 39
Disount table28:

Years Discount rate

4% 6% 8% 10% 20%

1 0.9615 0.9434 0.9259 0.9091 0.8333

2 0.9246 0.8900 0.8573 0.8264 0.6944

3 0.8890 0.8396 0.7938 0.7513 0.5787

4 0.8548 0.7921 0.7350 0.6830 0.4823

5 0.8219 0.7473 0.6806 0.6209 0.4019

6 0.7903 0.7050 0.6302 0.5645 0.3349

7 0.7599 0.6651 0.5835 0.5132 0.2791

8 0.7307 0.6271 0.5403 0.4665 0.2326

9 0.7026 0.5919 0.5002 0.4241 0.1938

10 0.6756 0.5584 0.4632 0.3855 0.1615

Year 1: 1,49,57,127 × 0.9259 = 1,38,48,803.89

The same calculation was repeated for other years.

28
Business Management Guide

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