New Venture Investment in Singapore

Question: Identify a potential new venture opportunity in singapore and evaluate whether it will be feasible? Answer: Introduction Venture Capital is the capital which is provided to the business firm at the starting of the business for the high potentiality of growth (Kuratko and Hornsby, 2009). Venture capital is a very important source of capital which is required at the first stage of a business (Van Aardt, 2011. Venture capital is very risky investment for the investor because it is provided at startup position of a company and return is highly dependent on the companys growth (Ginsberg and Hasan, 2003). Mainly wealthy investors are interested to put their money in the business towards looking long-term growth (Timmons and Spinelli, 2009). Invest banks and some others financial institutions are also the sources of venture capital. Major decisions of business can be influenced by the venture capitalist (Klonowski, 2010). Singapore is a suitable hub for the business investment. Many international businesses have attracted for the business environment in Singapore. After the globalization, it becomes a potential destination for setting up new business. It is the 4th largest financial centre of the entire world. Various survey reports show that Singapore is one of the suitable place for operating business and commercial transaction. According to the oil refinery sector, it is ranked as third position and it possesses second position in regards of casino gambling. There is even lot of competitive market opportunities and demand of several products and services such as electronics product, retail sector, iron steel and garments. The reasons behind the growth of market are good transportation system, large availability of market place and skilled manpower (Spinelli and Adams, 2012). Singapore is denoted as entrepreneurship capital of the whole world. It is a very lucrative place for starting up new business venture. The administration facility and ultra-metropolitan culture provide a wide scope for experimenting with new ideas of business. According to the report of 2010, the total population of Singapore is about 5 million. The growth rate of population is 0.8 %. It is Singapore citizenship are of 60 % among total population and the rest are foreigners who are working in Singapore. Singapore falls under urban category due its small size. Due to its free market policies several investors get attracted for the investment in new business. Economic freedom helps to set up new business quickly (Hindle and Klyver, 2011). Singapore ranked as third position in respect to growth of economy. The growth rate of GDP is near about 14.47%. According to major credit rating authorities, it is rated as AAA. The proportion of services and manufacturing sector are respective 72.8% and 27.2%. Singapore is a world leader in respect of providing of services. The number of tourist is also high about 11.638 million. The government of Singapore has taken several initiatives for the growth of tourism industry. According to the growth of population, increasing number of tourists and economic development, it can be said the food beverage business is suitable. Also the demand of the food beverage is increasing day by day. Food Beverage Business Food Beverage business is suitable for the selection of new venture. Singapore is economically developed country and wealthy nation. So, rate of consumption food is increasing day by day. The past history and current economic trend shows that there is well opportunities for the growth of Food Beverage industry. According to the report of 2013, this industry has contributed 3.2% to the total GDP of the country. The production of agricultural product is very low and rapid urbanization can be observed. For this reason, the country imports food products larger than 90 % from the other Asian Countries. The expenditure on Food Beverage is growing rapidly. There several reason for the growing of consumption of Food Beverage such as increasing of working women, increasing in population of middle class people and increasing in individual earnings (Bradshaw and Carrington, 2009). The future growth of Food Beverage is expected due to high increase rate of income and increasing of tourist a rrival (McGivern, 2009). The business will set up mainly targeting the tourist with some innovative food items. Market Analysis Industry Retail Singapore is unable to produce much agricultural foods. So, it imports food products (greater than 90%) from the other countries. According to the report of 2011, it has imported foods worth of $ 12.1 billion. It is expected of continuous growing of this industry in the future due to its high consumption growth. The basic item of Singapore is carbohydrates. For this reason, the purchasing of bread and cereal products became higher (Aaker and Aaker, 2010). The proportion was 21% of total food consumption. The proportion of consumption of food is shown as following table: Food Items Percentage (in respect to total consumption) Bread and Cereal 21% Meat and Sea Food 17% Vegetables 13% Dairy Products 17% Trend in importing of foods outside countries: It can be observed on the above chart that the importing of foods from outside countries has increase over the period. The four major food retailers in Singapore are large retailers, petrol stations and traditional stores. As per industry report of 2010, it has 3000 supermarkets, department stores, convenience stores, hypermarkets and provision shop. They sell mainly agricultural food, processed food and drinks. The market shares of above retailers are shown in table: Category of Market Market Share Super Market and Hyper Market 80% Convenience Stores 19% Traditional Stores 3% It is observed that the online purchaser of food is only 6%. The reason is behind that the business hour of reputed supermarkets is high. The opening hour of super markets is from 9 am to 10pm daily. The opening hour of NTUC supermarket is from 7 am or 8 am to 11 pm daily. It is depend on the location. Some supermarkets provide service 24 hours. The internet access is wider (greater than 20% of total population). So, it is expected that online retailing can increase in the future. Specialty and Gourmet Stores The price of foods in Specialty stores is higher than the other large retailers. The examples of specialty stores are independent single outlet butcheries, wine shops and bakeries (Feld and Mendelson, 2011). The target customers of these stores are high income group consumers. It holds jus 1% of total market share. The demand of gourmet products in Singapore is increasing over the five years. Organic natural Foods The market of organic food is very small in Singapore. The retail value of organic food was S$11 million. Packaged foods hold 90 % of that value and rice has also biggest contribution (75%) on this. It is observed that baby food has the biggest increase. Processed or Packaged Food Processed foods are a large category of food. The demand of frozen processed foods is yet stable. In 2012, the growth of frozen processed food was 3%. The consumption of frozen vegetables was high because the consumer prefers processes vegetables due to food safety. It is expected that the growth of packaged foods is key driver. The demand of frozen is expected to be constant because it provides convenience and nutritional value. Dried Processed Food Rice is actually staple food of Singapore. But, gradually, the consumption of rice decreasing and side by side the consumption of noodles, bread and dried pasta has increased. The high availability of such products reduces the rice habit. Ready Meals As changing of lifestyles of Singapore, consumers are willing to consume ready meals to save their time from busy schedule. But the growth of ready meals is less. The available ready meals are not attractive enough to the consumer. Chocolate Confectionary The trend of chocolate consumption is reducing due to health consciousness. Sugar is added in chocolate and antioxidant properties are also added in dark chocolate. For that reason, consumer avoids the chocolate. But the consumption of premium high quality chocolates is increasing because of its sophisticated taste and used of high cocoa content. Biscuits The sales growth of biscuit in Singapore is so high and consumer prefers to consume small size pack of biscuit. Beverages The demand of the alcoholic drinks is very high even in the economic slowdown situation. It is due to increasing of income level and opening of large numbers of restaurants and pubs. The younger consumers also involve in this segment and there is larger opportunity of growth due to increasing tourists and foreigners. The growth of consumption of hot drinks is strong and stable because the individual earning is increasing. Hot drinks save the time of consumer from their busy lifestyle. There are lots of opportunities for food of beverages to supply the foods with bringing of new items because the customers are looking for special dishes. Competitors Singapore market is highly competitive for existing of large numbers of competitors and it is not easy to enter into the market. The food markets of Singapore rare mainly played by supermarkets and hypermarkets though various alternatives are presented such as the wet and dry markets, small mom and pop type shops, mini-marts and specialty and drinks shops (Cumming, 2012). There are three main players that occupy the retail market of food in Singapore: NTUC Fair Price, Dairy Farm Group and Sheng Siong. Fair Price group of supermarkets is owned by the co-operative NTUC Fair Price Co-operative Ltd is the owners and operators of FairPrice group of supermarkets. Now, this supermarket is available in maximum residential area in Singapore. The target customers are low income group to medium income group consumers. They sell more fine foods compared to other outlets and they follow good pricing strategies. Dairy Farm Group operates runs many supermarket brands. The target customers are of highest income group. The brands of Dairy Farm Group are as follows: Dairy Farm Cold Storage The Market Place Giant Three-Sixty Gourmet Supermarket The numbers of listes supermarkets on Singapore Stock Exchange are greater than 25 which are operated by Sheng Siong and these supermarkets are ranked as third position due its wider chain of supermarket. The target customers are low income group of consumers. They do not sell products like FairPrice and Cold Storage. Maximum products of them are brought from neighbour countries. Customers Individual income level in Singapore has increased over the period. The median household income increased $3640 in 2000 to $5000 in 2010. The earnings of resident households $6000, grew from 27% in 2000 to 43% in 2010 while the proportion earning at least $15000 more than doubled from 4.1% in 2000 to 10% in 2010. There are two types of consumer segments in Singapore. Fist group is middle-aged PMETs (40-64 aged) who larger disposable income. Second group is younger group of PMETs (20-30 aged). Younger group is influenced by modern western cafes and the media. It is observed that the tourist arrival has increased in Singapore. Due to changing of lifestyle to hectic, the consumers of are looking for readymade foods because the enough time is not available to prepare home made fresh cooked meals (Burns and Bush, 2010). For this reason, trending of eating is changing. Either they try to eat out quite a bit or they are willing to consume readymade processed and packaged food and the preparation time of these kinds of foods is very less. Singaporean culture is affecting by Western culture. As a result the maximum households are willing to consume Western type of foods (e.g. pasta and roast beef).The consumption of cereal and breads are also increasing as breakfast option in spite of conventional breakfast options. The trend of consuming of food s by high income group is also changing. They are willing to consume value added foods and beverages at a premium. The consumers of Singapore are getting affected by health and safety awareness. They are looking for foods which healthy. The demand for packaging foods labeled with nutritional information is increasing. The alternatives of healthier food s are wholegrain food item, dairy products with low fat and bread (McDaniel, 2009). Side by side, the consumption of foods with calories and fats is decreasing. Break Even There are lots of fixed and variable expenses such as Raw Materials, Ingredients, Packaging, Rent, and Advertising, etc. For those high expenses, it will take some time to meet the break-even point. According to the cash flow, it analyzed that XYZ Food Beverage Company will meet the break even between the months of May and June where the total cost and revenue of the company will be equal. Thereafter, it is expected that it will start to earn profit. Evaluation of the Concept Strengths Weaknesses Strengths As targeted to tourist, there will be wide range of products. Different foods of countries will be available at reasonable price. The premium products will also available for high status customer and high income group customers. Some unique readymade meals are made according to the demand of the consumers. Suitable market strategies are adopted comparing to the other competitors to enter into Food Beverage industry. Weaknesses The cost of producing of foods will be high. The production of agricultural products is very less. So, it is required to import the ingredients and raw materials from the other countries. Also, some food items need to import from other countries. So, it will incur high cost and large pricing issues. Feasibility Test through NPV Analysis Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cash Outflow ($150,000) Expectd Cash Inflow $16,084 $15,338 $23,566 ($90) ($7,199) $24,887 $5,514 $10,056 $24,207 $22,398 $10,627 $35,449 Discount Rate (Monthly) 0.87% 0.99138 0.98282 0.97435 0.96594 0.95761 0.94935 0.94116 0.93304 0.925 0.91702 0.90911 Present Value 15205.71 23161.24 -87.69 -6953.83 23832.11 5234.73 9464.36 22586.28 20718.15 9745.19 32227.14 Total Present Value 155133.40 Net Present Value 5133.40 (source: Marlowe et al., 2009, pp.465) The initial investment for setting of this venture is expected $150,000 million and expected monthly discounting rate 0.87%. According to the above table, it is observed that the Net Present Value of this project is positive. So, it can be said that the project is feasible for the investment. Whether to pursue the venture or not Though there are large competitors, the demand of foods and beverages is even high in Singapore market. There are some demands in some segments but the supply of foods is very less such as ready meal, various cultural foods in respect to different countries. The strengths of this venture are also more than the weakness. NPV analysis also shows that the investment is feasible. So, it is beneficial to pursue the venture of new Food Beverage. Conclusion Market analysis says that there is lot of scope and opportunities for Food Beverage. There are some weak areas of the market which can be focused by this venture. The target customers (tourists) are increasing but there is no supply according to the demand. The lifestyle is changing day by day. As a result, high demand of readymade food is growing. Therefore, the venture is suitable to grow and earn profits in the Singapore. References Van Aardt, I. (2011). Entrepreneurship and new venture management. Cape Town: Oxford University Press, Southern Africa. Timmons, J. and Spinelli, S. (2009). New venture creation. Boston: McGraw-Hill/Irwin. Spinelli, S. and Adams, R. (2012). New venture creation. New York: McGraw-Hill/Irwin. Kuratko, D. and Hornsby, J. (2009). New venture management. Upper Saddle River, N.J.: Pearson Prentice Hall. Klonowski, D. (2010). The venture capital investment process. New York, NY: Palgrave Macmillan. Hindle, K. and Klyver, K. (2011). Handbook of research on new venture creation. Cheltenham, Glos, UK: Edward Elgar. Ginsberg, A. and Hasan, I. (2003). New venture investment. Amsterdam: Elsevier.) Feld, B. and Mendelson, J. (2011). Venture deals. Hoboken, N.J.: Wiley. Cumming, D. (2012). The Oxford handbook of venture capital. New York: Oxford University Press. Bradshaw, M. and Carrington, P. (2009). Entrepreneurship and its economic significance, behavior and effects. New York: Nova Science Publishers. Aaker, D. and Aaker, D. (2010). Marketing research. Hoboken, NJ: John Wiley. Burns, A. and Bush, R. (2010). Marketing research. Upper Saddle River, N.J.: Prentice Hall. McDaniel, C. (2009). Marketing research essentials.. Hoboken, N.J.: Wiley. McGivern, Y. (2009). The practice of market research. Harlow, England: Prentice Hall/Financial Times. Marlowe, J., Rivenbark, W., Vogt, A. and Vogt, A. (2009). Capital budgeting and finance. [Washington, D.C.]: ICMA Press. Appendix: Projected Cash Flow: XYZ Food Beverage ($ million) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Semi-Annual Cash Receipts from Processing $71,079 $70,814 $84,973 $45,479 $36,410 $84,923 $57,787 $65,759 $87,159 $84,502 $67,361 $104,782 $861,028 Cash Receipts from Retail $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 $8,333 $100,000 Cash Receipts from Wholesale $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $2,083 $25,000 Cash Available (Start Up Operating Capital) $0 $11,929 $23,096 $42,462 $38,165 $26,740 $47,384 $48,637 $54,413 $74,322 $92,404 $98,696 General Expenses (Cash Out) Raw Materials $10,949 $10,908 $13,962 $5,604 $4,487 $13,954 $9,495 $11,480 $15,664 $15,186 $12,106 $19,369 $143,164 Ingredients $1,488 $1,483 $1,898 $762 $610 $1,897 $1,291 $1,560 $2,129 $2,064 $1,645 $2,633 $19,460 Packaging $6,582 $6,558 $8,393 $3,369 $2,697 $8,388 $5,708 $6,901 $9,416 $9,129 $7,277 $11,644 $86,065 Officer Wages $2,724 $2,724 $2,724 $2,724 $2,724 $2,724 $2,724 $2,724 $2,724 $2,724 $2,724 $2,724 $32,692 Hourly Wages $22,639 $22,639 $22,639 $22,639 $22,639 $22,639 $22,639 $22,639 $22,639 $22,639 $22,639 $22,639 $271,671 Payroll Expense $2,339 $2,339 $2,339 $2,339 $2,339 $2,339 $2,339 $2,339 $2,339 $2,339 $2,339 $2,339 $28,073 Contract Labor $471 $471 $471 $471 $471 $471 $471 $471 $471 $471 $471 $471 $5,650 Dues and Subscriptions $74 $74 $74 $74 $74 $74 $74 $74 $74 $74 $74 $74 $884 Interest Expense $9,196 $9,179 $9,161 $9,143 $9,125 $9,107 $9,089 $9,071 $9,053 $9,034 $9,016 $8,997 $109,171 Property Taxes $109 $109 $109 $109 $109 $109 $109 $109 $109 $109 $109 $109 $1,304 Laundry $204 $204 $204 $204 $204 $204 $204 $204 $204 $204 $204 $204 $2,453 License $90 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $90 Legal and Accounting $0 $0 $1,313 $0 $0 $0 $0 $0 $0 $0 $0 $0 $1,313 Vehicle Expense $292 $292 $292 $292 $292 $292 $292 $292 $292 $292 $292 $292 $3,501 Replacement Tools $174 $174 $174 $174 $174 $174 $174 $174 $174 $174 $174 $174 $2,087 Telephone $70 $70 $70 $70 $70 $70 $70 $70 $70 $70 $70 $70 $834 Advertising $559 $559 $559 $559 $559 $559 $559 $559 $559 $559 $559 $559 $6,713 Office Expense $422 $422 $422 $422 $422 $422 $422 $422 $422 $422 $422 $422 $5,067 Utilities $2,787 $2,787 $2,787 $2,787 $2,787 $2,787 $2,787 $2,787 $2,787 $2,787 $2,787 $2,787 $33,439 Insurance Expense $1,564 $1,564 $1,564 $1,564 $1,564 $1,564 $1,564 $1,564 $1,564 $1,564 $1,564 $1,564 $18,764 Rent $325 $325 $325 $325 $325 $325 $325 $325 $325 $325 $325 $325 $3,900 Travel $0 $658 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $658 Supplies $751 $751 $751 $751 $751 $751 $751 $751 $751 $751 $751 $751 $9,011 Other Services $685 $685 $685 $685 $685 $685 $685 $685 $685 $685 $685 $685 $8,224 Repairs and Maintenance $918 $918 $918 $918 $918 $918 $918 $918 $918 $918 $918 $918 $11,013 Total General Expense (Cash Out) $65,412 $65,892 $71,834 $55,985 $54,026 $70,453 $62,689 $66,120 $73,368 $72,521 $67,151 $79,749 $805,200 Principal Payment $4,122 $4,139 $4,157 $4,175 $4,193 $4,211 $4,229 $4,247 $4,265 $4,284 $4,302 $4,321 $50,644 Taxes $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $33 $393 Cash Available $11,929 $11,166 $19,366 -$4,297 -$11,424 $20,644 $1,253 $5,777 $19,909 $18,082 $6,292 $31,096 $129,791 Cash Forward $11,929 $23,096 $42,462 $38,165 $26,740 $47,384 $48,637 $54,413 $74,322 $92,404 $98,696 $129,791