Assignment 3

ECONOMICS ASSIGNMENT- 3

TOPIC- BUSINESS PLAN

SHOE FACTORY FOR CORPORATES

Submitted To: Submitted By:

Prof. Manasi Gore Geetika Gupta

PGDM- D

Roll No.:- 2804428

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I) LOCATION

As location is the most crucial factors in any business entity, it is very much implied that the site
for the business plan should be selected with at most prudency and rational vision, especially
when you are aware of the fact that your business will need some time in the initial years to
establish itself. Taking into consideration all the risks involved, the best location for my shoe
factory will be 30 km away from the Delhi-Agra Highway, near a place called Fareh. The
various factors involved for choosing this particular location are:

 Price of the land is cheap

 Easy availability of water
 Electricity connection will not be a problem because of easy availability of water
 Easy availability of labor (as the site is has a village nearby)

The size of land required- 3000 sq. feet.

The price of the land is Rs 2500/sq. feet.

Therefore, the land will be acquired for Rs 75, 00,000.

The other expenses that would come into picture are:

 Construction expense : Rs 400,000

 Security system : Rs 20,000
 Office Material : Rs 30,000
 Rented Corporate office in heart of the city (Sanjay Place, Agra) – Rs 20, 000
 Maintenance Cost of the office – Rs 50,000

Therefore, the total amount in the location sums up to Rs 5,20,000

II) MARKET STUDY

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The business plan prepared by me will be concentrate mainly on domestic market as of now and
the main area of focus will be Maharashtra and Gujarat. The reason for targeting such states is
that these states have damp season for the maximum period in a year, and have the
maximum no. of corporate offices in the country, which is why the demand for formal
shoes for both men and women, is always high. Moreover, these are the fastest developing
states in the country, so there are always chances of high growth, better opportunities, more
employment, higher standard of living, more chances of expansion and ultimately, demand
for classic footwear for the upcoming corporate.

The breakeven point will be experienced after 3 years.

These corporate/formal shoes will be manufactured for both men and women, preferably in
black, brown or cherry color.

III) INDUSTRY ANALYSIS

Industry analysis is basically designed in such a manner so as to provide the idea of the basic
complexities of the business in an industry. Industry analysis revolves around reviewing the
economic, political and market factors that influence the way the industry develops. Major
factors involve suppliers and buyers, competitors’ condition and likelihood of new market
entrants.

India ranks 2nd among the footwear producing countries in the world after China

As far as the shoe industry is concerned, it holds the potential to give 12-15% of the profit
margin, and the rate at which the Indian population is growing ensures the growth of this
industry by 4-5% in upcoming years. Therefore it holds a huge potential to sustain in the
market.

IV) COMPETITOR’S STRATEGY

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The various strategies that will be required to offset our product from that of the competitors are:

 Advertisement for Branding: As the products will not be directly sold to the customers,
thus it will require a proper channel to reach the same. In this case, the optimum strategy
to establish my product will be to acquire dealership or appoint a dealer. This will
further lead to few more strategies to maintain the same, such as:

 The security amount for the investment, so that the dealer gains confidence
about the business and continues with the required plan.

 Dealer that will be hired will be a localite, so that he is aware of the market
structure and is in a position to give the details of demand and other factors in
the market. He should also be in a position to predict and analyze the upcoming
changes in the market and thus help to transform the product as per the required
market demand. Also, he will be able to convince the customers as well.

 Maintaining his level of interest in the business.

 Quality: Manufacturing a quality product is very essential, as the product is new in the
market and has competitors as well; therefore, providing a quality is the prime strategy to
beat the competitor.

 Price: Offering the initial price at cost so that the customer is able to consume the
product and feel the difference and this will automatically help my business to start
capturing the market, establish itself.

V) SWOT ANALYSIS

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STRENGTH

 Consumer Good: The product that I have chosen for manufacturing is the consumer
good whose market demand is always there and is required at the grass root level.
Therefore, it will give me a strong customer base for my business.

 Changing Trends and Preferences: The only thing constant in this world is change.
This will be one of my biggest strengths as the demand for the product changes with the
fashion, and shoe industry being one of the most dynamic industry, will give more
chances and opportunities to bring about innovation in my existing products and will
give more scope for profit.

 Dynamic Industry: As the industry is dynamic in nature and there is constant

innovation that is required each time, therefore, there are more chances of diversification
with the span of time and changes in the industry. If need arises, I can divert my business
towards fashionable footwear, kids zone, etc.

 Easy availability of low cost labor

 More possibilities of exports in the long run.

 Tax incentives on machinery provided by the Government

 Comfortable availability of raw material.

 Presence of qualified leather.

WEAKNESS

 The weakness of my company is that it is more of labor oriented, though being cheaply
available, but initially it is more of labor intensive than capital intensive.

 Another weakness which is faced by my company is that the market that I am targeting is
away from the site. Therefore, this will lead to extra cost of transportation; involve

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various formalities like octroi charges, licensing, permission from other state
governments and numerous other long procedures.

OPPORTUNITIES

 This industry has a great potential for expanding in the export market.

 Growing fashion consciousness.

 Product diversification.

 Growing domestic and international market.

THREAT

 The threat which my company will face is that of the local competitors in the short
run and a great threat from China in the long run.

 Non tariff barriers.

V1) PRICING

Product pricing will take in the following manner-

 Ladies

Particulars Cost

Manufacturing Cost Rs 400- 500

Dealers Cost Rs 580

Market Price Rs 650

 Gents:

Particulars Cost

Manufacturing Cost Rs 600-700

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Dealer Rs 750

Market Price Rs 800

VII) MANPOWER PLANNING

There will a total workforce of 20 labors is required. The following table gives the distribution of
workforce and their areas of performance in the business plan.

Particular No. of labor Type/ Use of that Cost

machine (Purpose)

Plant 1 2 Cutting of leather Rs 120 per day

Plant 2 and 3 2 (total) Pasting Rs 120 per day

Sewing Machine 4 Stitching Rs 120 per day

- 2 Packing Rs 120 per day

- 2 Accessory fixing Rs 120 per day

- 1 Supervisor Rs 5000

- 1 Designer Rs 8000

- 1 Watchman Rs 2000

- 1 Storekeeper Rs 5000

IX) COST MINIMIZATION

As cost minimization is a phenomenon that takes place after some time is being spent in the
industry, for understanding the market forces, its strengths in the market, threat, etc., so as to
minimize the cost. The cost minimization in my business plan will be more efficiently acquired
in the long run, as in that scenario the plant could be turned into capital intensive which would
help the business to attain long run average cost, produce the units and enjoy cost benefits
and acquire additional profits by disposing off the plants in the long run.

This long run phenomenon can be observed by the following figure:

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However, in the short run, the business will have to be run by using labor intensive techniques
and the short run average cost could be attained in this matter by increasing the plant size
or employing more plants if need arises.

The production will be done as according to these costs, when marginal cost (cost incurred
by employing additional unit of labor) and average cost (per unit cost of production) will be
equal and MC will cut AC from below. This can be understood more clearly by analyzing
the following figure.

X) BREAK UP OF FIXED AND VARIABLE COST

VARIABLE COSTS FIXED COSTS

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Particulars Amt. Particulars Amt.

Labor Rs 120 per day to Interest on loan Rs 20,000-

each labor (16 30,000
labor)

Raw Material Rs 7- 8 lacs Total fixed Rs 100,000

charges (salaries,
electricity bill,
rent,
depreciation, etc)

Office Material 30, 000 Insurance Rs 3000

Premium

Maintenance Rs 50, 000

Cost

X1) DEMAND FORECASTING

India is on the verge of corporate expansion, implying the fact that many of corporate houses
are looking forward towards India for their business expansions. This will require them
sophisticated professionals to run their enterprise. Due to this corporate expansion, there will be
rising demand for corporate accessories, generating the demand for formal footwear, giving a
new edge to the footwear industry and a prosperous future to my business. There will be
increasing fad for the formal wears and new stylish designs for the same, giving birth to
opportunities for my business.

X11) ELASTICITY & STRATEGY INVOLVED

As the demand for the product in which I am dealing in, is relatively implying the fact that even
if there occurs a large change in price, there will be feeble change in the quantity demand of that
product. Therefore, this is one of the advantages or may be strength of my business that I am

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manufacturing, that the product is relatively inelastic, and hence, would be helpful in times of
crisis.

Strategy to increase market demand:

The various strategies that could be helpful to increase the market demand are:

a. Periodical Sales: It will be made sure that proper periodic sales are made so as to ensure
there is never a scarcity of the product, and the product is readily available whenever
desired by the customer.

b. Awareness: Proper awareness will be spread by the dealer, about the quality or rather,
the distinguished feature of the shoe. For instance, the corporate shoe has to be worn for
duration of 8-9 hrs on an average, therefore, footwear should be comfortable enough to
carry and should not be harmful for the feet. Therefore, my product will be stiff by any
chance and this will make it less tiring for those who will consume it.

c. Disinfectant Shoe: The product that will be manufactured will be a disinfectant shoe so
that it does not \harm or injures the feet of the consumer, and in turn spoil the image of
the company.

d. Non-allergic: The shoe will be non allergic to all the skin types and all the age groups.

e. Less Maintenance: The shoe manufactured will require less maintenance, as it will be
used for 8-9 hrs a day, therefore, it has to be durable enough and shouldn’t require much
maintenance, which will help in raising the demand of our product.

TOTAL EXPENDITURE

Particulars Amount
Land 75,00,000
Total Assets(machinery, security system,etc) 4,92,000
Construction Expense 4,00,000
Total Fixed Cost 1,83,000
Total Variable Cost 8,87,600
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New Office Set-up 3,00,000

VAT,Sales Tax registration 5,000
Contingency Cash 2,30,000
TOTAL EXPENDITURE 99,97,600

TASK 2

STRATEGY IN VARIOUS SCENARIOS

Case 1: When the Exchange rate of dollar depreciates to Rs 50-

Under flexible exchange rate system, changes in the rate of exchange rate will automatically
adjust the balance of payments. Depreciation of currency means rise in the price of foreign
currency, or which is at the same thing, fall in the price of domestic currency. Therefore, the
value of dollar has come down in terms of Indian currency and this will imply that the
imports have become cheaper for India. But, as our raw material mainly consists of leather
which is best available in India we will not shift for imports even if the value of dollar
depreciates. More over our market being domestic there is no question of its effect on export
earnings as well.

Case 2: Inflation increases to 12%-

Inflation refers to a phase in the economy in which there occurs a general rise in price level
over a period of time. The purchasing power of money falls down due to rise in prices, which
leads to buying of a fewer purchase of goods and services. Therefore, when there will be a
hike of 12% in the inflation of the economy, then in such a case, to off beat the inflation

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effect on the profitability of the business, I will raise the cost of the product by 7-8%.
Then only I will be able to meet the profitability of the business.

Case 3: GDP growth reduces to 7%-

GDP of a product refers to the amount of goods and services produced by the normal
residents within the territory of the country. Thus, there will be an overall fall in the
demand of the product and the consumption will also decline. In this scenario, the
strategy that I will use to sustain in the market is:

 By concentrating more on exports, so that even when there is a fall in the

domestic market, this deficiency could be compensated by expanding the
profitability in the foreign market.

 Introducing the production of kids wear (school shoes), as the demand for those
products is perfectly inelastic in nature, so even in case of market fluctuations
like inflation, price hikes, economic disparities, etc., it will hardly affect the
demand of the kids wear.

 Also, fall in GDP will lead to fall in the demand, leading to fall in the production,
thus resulting in low …. Contd.

Case 4: Interest costs increases to 15%-

Interest will be charged on the loan acquired from the bank. Therefore, a rise in the interest, will
lead to rise in the fixed cost of the product, which will result in the rise in the total cost of
production. To maintain the profit margin with this rising cost, I will raise the price of the
product.

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