Newco Negotiation Game - Case Study Example

Newco Negotiation Game By: Professor: Class: University: City: State: Date of submission: Newco Negotiation Game Technology and Appropriate Position of the Business With the increasing technology and accessibility to the phones, the main issues affecting the most regions in Africa is inaccessible of the phone charging systems. Although the technology is not new in Kenya, it would reduce the gap in the electrical needs of the people. Considering the technicality in the design of Newco, it would be difficult to acquire its intellectual property rights. This is a weakness for the project as it opens door for the risks of counterfeiting. Therefore, the innovator needs a patent right which is granted to the innovator who has created anything useful (Cohen, 2002, 152). Through obtaining a patent cover, the innovator would be preventing others from using, selling, manufacturing, and copying the innovation without permission for the limited period. Kenya is upcoming global market without many market barriers. Moreover, there is need for technological advancement within the country, which gives Newco the opportunity for investment. As a result, the entrepreneur has every freedom of operation upon satisfying all the required certifications. Focusing on the Newco’s financial plan, it has covered much of the things required for the protection strategy. However, it requires a properly defined strategy for intellectual property rights considering the increasing level of counterfeiting within the country. From the project plan, the innovator listed the requirements, products and services, for the completion of the project. Nonetheless, there is not adequate definition of the timelines for accomplishment of every stage of the project. To complete the project appropriately, the innovator needs to identify the project’s activities and define them by establishing the timelines for every activity. Judgment on Value Chain According to Newco, to operate effectively within the Kenyan market, it could employ various models including lease to kiosks, partnering with the mobile network providers and using them as sales media, direct sales to kiosks, and direct sales to the major retail and distribution networks. However, the entrepreneur needs to focus on effective creation and capturing of value through focusing on the pertinent strategic margin, volume questions, and provision of the operational guidance. With its value chain, it might be difficult to reach the end users considering the market complexity and difficulty in dealing with third parties in Kenya. Since the product is new within the Kenyan market, the competition from the already established firms might be stiff making it difficult to reach the end user. With its direct sales to the kiosks, it might be easy to reach the end user but through costly process of hiring personal selling personnel. The process also requires people with diversified knowledge of the Kenyan market and consumption behaviour of the locals. Kenyan charging industry is highly fragmented with most providers focusing on the local areas due to inadequate supply of electricity. To compete effectively and acquire the desired competitive edge, Newco would have to ensure that its product serves the specified needs of the Kenyan. Newco needs to shape its value chain through industry framework, unique value proposal of the organization, internal processes, and managerial processes. Judgement on Business Model With low disposable income and high poverty level in rural areas, the pricing strategy used is vital in determining the extent to which the consumers purchase the products. According to Newco, it would set a premium price of US$150 of the outset of the product launch and pricing strategy and adjust proactively as new entrants the market with the substitute products. Moreover, Newco has the support of the micro-financing fund incentive; as a result, the customers might not need to pay the high upfront cost. This is an important step in exploring the Kenyan market; however, Newco has not adequately defined the sustainability of such strategy. In Kenya, typically the businesses charge between Ksh 15 to Ksh 20. Through allowing the customers to pay for the product on partly basis, Newco would earn a lot of profit. The business aims to serve the Kenyan rural market with adequate electricity supply but have active mobiles. Moreover, the company expects to grow through capturing significant market share and generating a cumulative income of US$3.5m or through leveraging on the existing network, brand, and expand outside the Kenyan market to various Sub-Saharan. The growth is achievable through addition of new product features, partnering with the mobile network operator, and direct sales to the government bodies. The strategy is appropriate to follow; however, it is significant to have a plan for such activities to prevent losses in the foreign markets due to various economic tantrums. Judgment on Market The calculation of market size alone does not give the red or green light on the investment decision; there is need for the research on the strengths and weaknesses of competition, anticipated profit margins, and return on capital. The entrepreneur failed to undertake dual approach of comparison and bottom up methods. Market comparison approach involves appraising the property through analysis of the prices of similar properties sold in the recent past before making the adjustments based on the differences. However, the entrepreneur used a bottom up strategy, which involves promotion of the products and services through the employees. The approach involves finding the void in the market and ensuring adequate flexibility to stay relevant within the market. Kenyan rural market is highly potential for Newco; therefore, by choosing such a market segment, Newco made a credible decision. With stiff competition within the Kenyan market, especially in the urban areas with adequate electricity supply, rural areas often experience uneven distribution of electricity, which makes the products suitable within such market. Moreover, by prioritizing the market, it would be easy to consider the needs of the locals into consideration while establishing the marketing strategies. To assess the market roll-out plan, it is significant to focus on reduction of product time to market, consistent communication, reduction of the product launch cost, and ensuring that Newco understands and assimilate the new information. The assessment method is leverage cross-functional team expertise which involves definition of the experts, subject matter, and pre-definition of the roles and responsibilities. Newco has undertaken market timing appropriately to realize that Kenya rural market requires charging systems for their phones and makes it easier to access such products; therefore, the timing is realistic. Currently, Kenya is becoming a global market; hence, the report needs to have a plan to counter the increasing level of technological competition, which could have negative impact on the business performance. Moreover, some of the Kenya rural areas cannot even afford the basic needs, which makes it very difficult the product to perform in such areas. Newco needs to consider all the economic factors within the Kenyan market to guarantee the achievement of its objectives. Judgement on the team For the success of the project, it is important to have qualified personnel on board to ensure adequate coverage of the project scope. From the organizational structure, Newco has enough resources to explore the Kenyan market; however, the plan has not defined the qualification and responsibilities of different human resources. In its Kenyan market, the business lacks engineers to assist in solving the challenges that could arise from the devices. Therefore, it is clear that if any problems arise, Solaris Kenya would have to ship the faulty device back to the UK for rectification. UK and Kenyan structure mainly have similar accounts, legal, and HR departments. The Kenyan market is highly complex and requires personnel with diversified knowledge in the market. To launch the product within the Kenyan market, the marketing department would ensure that consumers with the target market have adequate knowledge of Newco product while sales and distribution avails the products to various potential customers through direct sales. In Newco Kenya, none of the employees knows issues to deal with technology, which could inconvenience provision of services and effective management of the customers. In addition, the plan does not define whether the personnel would be from Kenya or other countries. Investments within the local market require people with adequate knowledge on consumer behaviour, market structures, and economic factors likely to have negative impact on the product. The business has adequately defined the role of the involved personnel, which is important in reducing overlap of responsibilities, and confusions that could emerge during the lunch of the project. The project budget is sufficient in building the team in their bid to commercialize the technology; nonetheless, the project failed to allocate financial resources to various personnel. An ideal team need to work for consensus on decisions, share openly and authentically with other members, and have consideration and use new ideas and suggestions from the others. To complete the team, Newco needs to bring on board various engineers and personnel with adequate knowledge in the Kenyan market. Judgment on Financials After conducting a market, Newco assumed that based on the market size and opportunities presented in the Kenyan market, it projects its first year sales of the 1000 units to generate US$150,000 in revenue and it seeks about US$170,000 to finance such operations. Such projections might be wrong considering that Newco used the market results from selling two functional prototypes, which received positive feedback. As earlier noted, the Kenyan market is highly diverse and needs of the consumers tend to change from time to time; therefore, Newco could experience several challenges associated with sales. Moreover, it is unrealistic to use two functional prototype programs to project the sales of 1000 units. Newco split its business cost into fixed and variable costs. The project projects that the human resource cost would represent 50% of the total fixed cost throughout the five for the alignment of organizational structure and functions setup for supporting and managing business operations based on the fixed cost. The costs allocated for the human resources is higher which the business needs to revise (Kıbrıs, 2010, 157). It is almost impossible to allocate half of the total project cost to the human resources, which makes it unrealistic to achieve some of the project activities. Although there is need to ensure sufficient allocation of resources to the human resources to motivate and improve their morale, the allocation should not be half 50% of the total cost. Other costs would be associated with the services rendered by the third parties, infrastructure and operations, marketing, and development of the product. According to the report, the plastic housing mould of the product would cost US$10,000, which is the upfront cost. The variable costs, components and assembly and product costs, are realistic, as Newco would use US$50.01 in producing a unit. However, with 1000 units, there would be reduction in the cost to UD$23.29, which makes the process sustainable. The plan shows that the business has tremendous opportunities to explore within the Kenyan market with high potential of achieving the objectives. In the first year, Newco seeks an investment of US$170,000 in covering the operational expenditures: fixed and variable cost. The Deal Structure 1 2 3 4 Total Capital shares 120 130 150 170 570 Founder shares 100 120 140 160 520 Technology shares 130 150 170 190 640 Management shares 80 100 120 140 440 To ensure effective operation of the business, it is significant that the business keeps capital shares afloat. Therefore, it needs to be higher that the founder shares and management shares. The business operates with highly competitive industry. With the ever changing needs of the customers and continuously developing technological level, it is important that the technological shares raised above the capital, founder, and management. The shares of the management and founders are based on the technological performance of the project; therefore, the proper the performance of the project, the higher the level of shares available afloat (Moustafaev, 2015). The founder could serve as the member of technological start-up’s management team; nonetheless, it is important to note that not all the members of the management team are the founders. While starting the operation, it is important that the entrepreneur consider the number of share available for the founders and stock options for issue within the relationships to the current valuation on the business and the valuation that the business intends to achieve in the first round on investments from the external markets. Steps taken to accomplish the deal 1. Formal initiation of the kick-off deal: the step involves putting together a kick-off team in place to ensure the achievement of the desired results; 2. Formal handing off the deal from the project relationship management team to the implementation team while ensuring adequate location of time to enable adequate execution of the project 3. Establishment of short-term plan: the step involves initiation of the steps required for financial and contractual closure and signing off the project which would ensure that there is clear accountability on the person to approve the project and sign-off different aspects 4. Establishment of communication: the stage involves publishing communication to various stakeholders on both short and medium term plans including outlining the expected impact to various affected groups 5. Setting the workshop for establishment of trigger plan: the step involves setting up small plan allowing the kickoff team to be in a position of initiating various activities affected by the deals Shareholder agreement: Amount of capital to increase From the financial analysis, it is evident that Newco undertook though analysis of the project’s needs. However, with the ever changing market conditions in Kenya and ever-increasing level of competition, there is need to increase the capital base for adequate coverage of the project scope. According to Newco, US$170,000 would be sufficient for the generation of 1000 units without consideration of various market economic factors. For adequate coverage of the project’s activities, there is need for US$50,000 to make it US$220,000. Final distribution of shares Investment offering in the first year Valuation, investment, and shares Investment amount US$220,000 Equity share offering percentage 60.00% Valuation US$330,000 Share Ownership (For the first year) Founders’ shares $40,000 Capital shares $60,000 Technology shares $100,000 Management shares $20,000 With the $220,000 for 60% ownership within the business, it follows that the business is worth $330,000. In the actual business environment, it is important to note that the values that businesses present are subject of negotiations with investors rarely accepting the assumptions of the entrepreneurs for the future sales, amount of investment, valuation, and ownership percentage. Therefore, it is important that the business supports its assumptions and be ready to adjust the place to reflect the investment agreements reached. Categories of shares The business has multiple classes of the common stock issue for assigning the voting rights. Therefore, Newco would have four distinct types of shares: Founders’, Capital, Technology, and Management Shares. Boardroom voting power The rights of individual shareholders generally depend on the shareholder agreement and the article of association of the business. For Newco, the vote would be passed by the simple majority of those available within the meeting to vote; however, some of the decisions require higher majority including special resolution of changing the article of association. References Cohen, H. (2002). Artful negotiating in a global economy: Winning the negotiation game. Beverly Hills, Calif.: Phoenix Books. Kıbrıs, Ö. (2010). Cooperative Game Theory Approaches to Negotiation. Advances in Group Decision and Negotiation, 4(2), 151-166. Moustafaev, J. (2015, February 5). Article - 7 Tips for Successful Project Negotiations | Thinktank Consulting. Retrieved October 31, 2016, from http://www.thinktankconsulting.ca/seven-tips-for-successful-project-negotiations Read More