Guide on Other strategic Considerations Flashcards
Balancing Growth and Quality
eg The challenge lies in balancing the growth opportunities provided by the dark kitchens with the need to maintain the high standards of the core business.
Scalability vs. Sustainability
e.g While expanding through dark kitchens might offer scalability and access to new markets, it’s crucial to ensure that this expansion is sustainable without compromising the core business operations
DMG gin of higher quality than current market suppliers in Mauritius resulting in a competitive advantage. - Heisenberg effect
Teaming up with people already settled in the country here is the advantage to that
Hornet/Greys are local alcohol manufacturer and accordingly familiar with local manufacturing/distributing
laws and legal requirements in Mauritius.
Tax rates in Mauritius are low, and could result in higher after-tax cash flows to the investors
The high GDP per capita of Mauritius means that people might more easily afford the gin than in SA
small population
. Mauritius has a much smaller population than SA and the 25% market share may grow not as much as
the South African market would grow in the future – why not expand locally?
easy mark
Foreign exchange exposure in terms of Mauritius expansion
Good geographical area
Hornet’s premises is is easy accessible by road and public transport and provide the venture with access to
the labour market
Hornet’s provides the venture with access to the local labour market .
No additional production capacity will be required by DMG in SA as Hornett only operates at 40% capacity
and the Gin will be manufactured using the spare capacity in Mauritius
he risk will be shared by both parties with regard to this venture
. Financial considerations:
earnings before interest, depreciation and amortisation from the joint
venture would approximate 16% of sales
therefore The trading margin of 16% is higher than the current margin of 7.1%
Pitfalls for a joint venture with a foreign partner
. Reliance on a foreign partner for infrastructure and manufacturing and the reliability of Hornet is critical
Potential conflicting management styles may jeopardise the joint arrangement, resulting in failure.
Hornet lacks the expertise in the production of low alcohol gin which may impact the quality of the gin
manufactured in Mauritius if supervision will only be from two SA managers.
No value is placed on DMG distilling expertise.
Potential loss of expertise and focus in the South African operations as a result of two managers
expatriated to Mauritius and Matty needing to visit frequently.
Labour issues and industrial action may increase the cost of production beyond the current estimates.
Hornet (potentially a competitor) will now have access to DMG’s secret gin recipe. (Greys does not get
access to DMG’s secret gin recipe – merit for Option B)
Hornet currently has sufficient capacity, but what happens if it wants to expand in future?
Costs and capacity of the free samples not taken into account
Additional costs for travel and accommodation as a result of two managers expatriated to Mauritius
and Matty needing to visit frequently for events.
Option B
The idea is to distribute the same
quantity of Greys spirits and wines in the South African market as the quantity of DMG gin that
Greys would distribute on behalf of DMG in Mauritius.
Reliance on a foreign partner for distribution – thus the reliability of Greys will be critical.
Demand levels for DMG and Greys gin may not be the same
The partners are in direct competition; this may result in Greys not pushing DMG sales as hard as for sales
of its own brands. (Hornet & DMG are not in direct competition (wine vs gin), and the risk of conflict of
interest is small – merit under Option A)
Greys will control Mauritius customer relationships, which means that DMG will be reliant on Greys.
Greys has a product of lower quality – distributing their gins might harm DMG’s reputation.
. Resistance by Mauritian government and locals to the fact that the gin is not produced locally and not
extending work opportunities to the local communities
. Glass bottles could break during transportation.
Additional distribution costs (and import taxes) for getting the gin to Mauritius
If the Yuppiedrinks agreement realizes, DGM will only have 10 000 bottles spare capacity and accordingly
DMG will need to expand its distillery in SA to increase production capacity to meet the additional sales
demand for the Greys venture.
Conclusion considerations
Payback period
