Business Proposal for Protrich Mushroom - Assignment Example

?Introduction This report is a business proposal for Protrich Mushroom, one of leading mushroom producing companies in South India. Being one of the pioneers in mushroom production in the region, the company enjoys a good brand image in the region. The major markets of the company are the four south Indian states. Apart from these major markets, the company also exports its products to UAE. Being a country which is thickly populated by South Indians, Protrich Mushroom enjoys immense popularity in UAE. Recently, the company has been facing a big problem of demand supply mismatch. The existing capacity of Protrich is not able to meet the demand for the products in its various markets. If the company is not able to expand the capacity for the existing demand and for the anticipated future demands, it will lose the market to other major competitors. Also, the Protrich need to expand as an international brand rather than confining itself to the south Indian and Middle East market. The potential markets for Protrich are China, Europe and USA. In order to compete in China, Europe and USA markets, Protrich will not only have to focus on the quality aspect but also on the cost aspect. For having an edge over the price, Protrich should adopt cost effective manufacturing. This is possible in India only up to a certain limit. Therefore, to have an even lower cost of production, it is better for Protrich to setup manufacturing unit in China. China, along with Netherlands accounts for more than 50% of the exports of white button mushrooms. China’s mushroom production has been in question for several times including certain countries imposing even anti-dumping measures on them. But this is mainly based on the fact that there wasn’t much notable technology being used for production process in the country. (Mushroombusiness, 2011) But Protrich being a company with all technological support for production, quality of production will never be in question. This report will analyze the benefits for Protrich to invest in China. Analysis Home Country The home country of the company is India. India as a mushroom market is not well flourished. There are very few established brands in the country. Even for the established brands, the market coverage will be limited. Retail customers are mainly from the upper middle class and above. Even for them, mushroom is not a frequent item on the dining table. But there is huge demand from hotels and restaurant chains. This is the customer group from which Mushroom companies have a steady demand. Dominos Pizza and US Pizza has been the customers of Protrich for six years and four years respectively. Apart from these established brands, there are also many other mediocre restaurant chains who are frequent customers of Protrich. Protrich’s major market is the southern states of India such as Kerala (the company’s home state), Karnataka, Tamil Nadu and Andhra Pradesh. Protrich’s products are available only in the major cities of these states. It is not distributed widely to include the smaller towns because there is very less demand in the smaller towns and cities. Even in the cities, the products will be available only in supermarkets. Protrich enjoys third position in terms of market share. The market leaders are Best Mushroom Limited and Mushroom India Limited. Protrich is almost at par with the market leaders in terms of the brand value. In the UAE market all the three brands are very popular. The advantage of current expansion move of Protrich is that it will be able to gain market share over the other two. Neither Best Mushroom nor Mushroom India has a market presence in Europe and USA. At this point, if Protrich is able to provide the market with quality products, it will be advantageous for the company in terms of brand value and market share. Host Country The potential host markets of Protrich are China, Europe and USA. Among these, foreign direct investment will be made by Protrich in China where it intends to setup the manufacturing units. The analysis will be based on the investments to be made and will therefore discuss about the potential operations in China. China will mainly be operated as a manufacturing hub by the company though it also intends to serve the Chinese market. As mentioned earlier, it is the factor of cost effectiveness that drives the China investment. Mushrooms can be grown in China with almost 40% less the cost that the company incurs in India. The major cost that is reduced is labor charge. Comparatively cheap labor is available in the Chinese market. If Protrich is able to develop China as its manufacturing hub, the mushrooms produced in China can be exported even to meet the rising demand in its home market. This is helpful because it can increase the profitability even without changing the price. Therefore, for the future demands, the company need not expand its Indian facility. Rather, it can rely on the Chinese production unit for meeting the demands of all the markets. China being one of the largest exporters of mushroom in the world, Protrich can take advantage of its governmental support as well. “Global mushroom production was an estimated 3.4 million metric tons (mt) in 2007, with China holding a 47 percent share of production.” (Koopman and Laney, 2010) Therefore, China is always being looked upon by other nations as the mushroom production hub. The cost advantage justifies this market leadership of China in terms of mushroom production. It is this advantage that Protrich should use for the benefit of its existing as well as other potential markets. Reducing production cost and increasing profitability should be the main aim of Protrich. By adopting this strategy, Protrich need not drain its brand value by activities like reducing price for capturing market share. Future of the Enterprise The future of Protrich can be explained in terms of market share and brand value. These are the two major indicators of the success of an organization. As discussed earlier Protrich currently enjoys the third position in its home market that is southern India. The only international presence of Protrich is its sales in UAE. In the UAE market, it is among the smallest players as UAE is a market where several other international brands are being sold. But with the current expansion into China, Protrich can increase the production capacity and grow as one of the largest suppliers in UAE. Once the new facility is operational, back home in the Indian market, Protrich can emerge to the first position. Of course, this can be achieved only if the increased capacity is also coupled with marketing efforts. As discussed, the brand value of the company is almost at par with the leading brands in the home market while in the international market; Protrich is just another small mushroom brand. Increased brand value is another benefit for Protrich from the China expansion. Increased marketing efforts and increased supply will increase the visibility of Protrich Brand. This will definitely increase the brand value of the company in the home market when compared Mushroom India and Best Mushroom. Increased brand value will trigger further increase in the sales. Conclusion The report has given a clear insight regarding the company and its feasibility of expanding into China. The huge investment that the company is about to make in China can be justified by the benefit that the company will receive through reduced cost of production and increased sales. Reduced cost of production is possible through cheap labor as well as through economies of production. Works Cited Mushroombusiness, (2011). The Cradle of Chinese Mushroom Growing. Retrieved April 30, 2012. From: http://www.mushroombusiness.com/content/articles/detail/253/the-cradle-of-chinese-mushroom-growing Koopman, R., Laney, K., (2010). Industry and Trade Summary. Retrieved April 30, 2012. From: http://www.usitc.gov/publications/332/ITS_7.pdf Hu, D., (2011). Mushroom Industry in China. Retrieved April 30, 2012. From: http://www.lei.dlo.nl/leichina/files/d50cde8fcbc78dc42a68700b96b10ee0.pdf Read More