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Key Considerations for Evaluating Growth Opportunities: Vectair Holdings

University: UKCBC College

  • Unit No: 42
  • Level: Undergraduate/College
  • Pages 16 / Words 4000
  • Paper Type: Assignment
  • Course Code: J/508/060
  • Downloads: 5
Question :

Planning is a significant part of the decision-making process which is made for the purpose of achieving growth and success in a competitive market. It requires effective research to conduct into the market so that market fluctuations can be easily identified and analyzed. Vectair Holdings Company is UK based technological innovator and producer of hygiene products as well as air care all over the world having headquarter in Hampshire, United Kingdom. You are just asked to identify suitable strategies for the chosen organization to achieve market growth.

  • Evaluate key aspects that SME must consider by analysing growth opportunities.
  • Assessing ways through which an organisation can easily avail funds and how it can be effectively utilised.
  • Produce a business plan including financial projection along with communicating how you grow your business.
  • Evaluate the ways through which the business owner of SME can easily exit the business along with the implication of each option.
Answer :
Organization Selected : Vectair Holdings Company

INTRODUCTION

Speaking in relation with the small and medium enterprise industry, it is quite assorted sector that encompasses uncountable business activities such as a coffee shop, small café, engineering firm, motor workshop, agricultural products firm and many more. These business functions are being performed by the firms on international, regional, local, urban and national level. It is quite obvious that for accomplishing the goals and objectives, they require human skills, competencies and growth orientations. Many studies have performed by the researcher in regards with small and medium firms which reflect that around 50 percent of GDP is being contributed by this industry which is quite major part (Katrak and Strange, 2002). At the start of 2017, small businesses were accounted for 99.3 percent of all private sectors. Moreover, the total employment in UK by this sector accounts for 16.1 million which is around 60 percent of the all private sector employment. The annual turnover of SMEs was £1.9 trillion. Further, this industry is also rendering employment opportunities to people all around the world. Thus, this sector has many growth opportunities which need to be enlightened for achieving success and growth. Considering this fact in intellect, the main aim of the research is to offer an appreciation of how SMEs develop as well as grow. In addition to this, the report will also throw light on various techniques and tools for determining opportunities for growth and will appraise options for achieving the same. For this purpose, Vectair Holdings Company is taken for the current research. It is one of the best technological innovator and producer of hygiene products as well as air care all across the nation with headquarter in Hampshire, United Kingdom. They are successfully offering sanitary solutions from past thirty years and have established their brand in more than 100 nations of the world. Vectair Holdings has variety of product in their product mix such as air freshening, hand washing odor control, air care, feminine hygiene, scent marketing, sanitary disposal and numerous other products (Vectair Systems, 2018). The firm is also being listed in the top 100 prosperous SMEs in Thames Valley region. I have been appointed as a Junior Manager in Vectair Holdings where Mr. Nagjovin who is the Head of Strategic Planning Department shared the vision of the firm regarding massive expansion. As a manager, the main task is to perform strategic planning for the company and evaluating the considerations that should be take care in the process of expansion. Furthermore, the present research study will create proper and systematic business plan for the preferred growth options selected by the firm. In addition to this, the final part of the research will pay emphasis on exit strategy or succession planning for the concerned business.

TASK – 1

P1 Analyzing key considerations for evaluating growth opportunities

Businesses functions and operates with a sole aim to expand their reach and activities whether in the national or international market. This is required for the long term sustenance of the firm in the market. Vectair holding is also related with SME industry and it is a well-known fact that this sector contributes massively in the economy of any nation. They are achieving success till so far, but the management of the concern has decided to adopt massive expansion and plunged the firm to a different level (Berry and Jervis, 2005). There is a need to analyze the opportunities for growth being available for Vectair Holdings in the current business environment. In addition to this, there is a need of careful planning about the growth which can help in bringing stability and good amount of return to the company. However, when the firm is leading the path of growth, it is obvious that it will be full of risks and challenges. Higher the risk, higher will be the growth of the firm. Seeking help from the precise strategies as well as techniques, long term success as well as growth can be scrutinized.

There are many considerations that need to be kept in intellect while selecting the growth options for the firm. These considerations act as a foundation, as further activities are dependent on the results being accumulated through them. In this connection, it is important for Vectair Holdings to first carryout their SWOT analysis. With this, they will get a complete picture of their major strengths and weaknesses that they need to work open. Opportunities will open a door for the organization that they can strive for and threats will alert the company and will offer a base so that strategies can be formulated to overcome them. The major strength of Vectair Holdings is there market share and turnover. This will help the firm in reaching the new market easily and conveniently (Ionica, 2012). Other than SWOT analysis, it is equally important to analyze the external business environment, competitor’s analysis, corporate planning of the firm etc. Concerning this, there are various tools that can help Vectair Holdings in determining the probable opportunities of growth and these are as follows:

  • Competitor analysis – Seeking help from this tool, the firm can evaluate their competitors, there strategies and other processes in the market. This can be done by using Porter’s five force analysis. Many firms operates in the same industry and give competition to each other and thus, a thorough knowledge in regards with the competitors will help Vectair Holdings on developing their strategies and further actions.
  • Diffusion of innovation – It is being defined as a process through which the firm can analyze that whether the new products and services the firm is planning to develop will be accepted by the target market or not. Furthermore, diffusion of innovation also helps the marketers as well as designers to analyze various reasons behind the effectiveness of inferior products when it is compared to the superior goods. This process takes into consideration five important processes that significantly include knowledge, encouragement, decision making, application and finally confirmation. Talking in reference with the knowledge, it is the initial level where marketers are required to spread the awareness about the new product and service within their target customers. At the next level, the target audience get themselves open up to the idea related to purchase. Further, this is the only stage where the marketers can influence the customers by elaborating the features of the new product and service (Bergthaler and Monahan, 2015). Furthermore, at the decision making stage, the customer himself evaluate the probable benefits of the products and service he or she will get if they purchase the same. They also discussed the consequences if they reject the offer or product. Next in the implementation stage the customer makes the final decision about the project that whether they are purchasing or not. Finally, at the confirmation stage, the customer again analyzes their decisions and makes decision about what will be the further use of the product after purchasing the product.
  • BCG matrix – Talking about the BCG matrix, it will help Vectair Holdings in corporate planning, where they can determine their portfolio units. Through this, their investment portfolio can be presented in an effective way such that business owners can take easy decisions about the exit or succession of the business. It helps in allocation of the products and services, product line issues and product mix. BCG matrix is being designed to offer long term strategic planning by involving four portfolio units i.e. cash cows, dogs, question mark and stars. In addition to this, it also encompasses growth rate of the market as well as firm’s share in the market factors (Leora, 2006). Vectair holdings can easily place their wide range of products such as air care, refreshing, feminine hygiene, scent marketing etc. and can determine the growth prospects and problems in the segments.
  • GE matrix – It is popularly known as General Electrical matrix which is being inspired from the traffic light. Pertaining to this, it is consists of nine cells with two dimensions that is attractiveness and business strength. Vectair Holding can draw their product lines on the matrix and can evaluate their strategic position. Products which are in the red area are in danger and those in green are occupying good position.
  • PESTEL analysis – Finally, PESTEL analysis is the best tool for evaluating the external business environment of the firm. There are many political as well as economic factors that influence the operation and working of the company such as inflation rate, growth of the economy, density of population, rules and regulations, taxation, political stability, income level, age, gender etc. other than this, it will also help Vectair Holdings in analyzing their legal, environment, technology and social impact on the business (Becchetti and Trovato, 2002).

Thus, from the above analysis and making use of various tools, Vectair Holding can easily determine their growth potential. On the basis of these considerations the firm can make decision on to which area to expand. Considering the strength and opportunities, the best option for the firm is to expand their business in the food industry of UK, as it is one of the fast growing industries.

P2 Chances for growth using Ansoff’s growth vector matrix

As discussed above, the main motive of every concern is to achieve greater heights which can be achieved through expansion and growth. After a certain period of time, when SMEs such as Vectair Holdings finds themselves in a successful position, they strive to garb the opportunities for further growth in the market. They just want to expand their business in any area which can reap them out handsome profits. Vectair Holdings also want to expand its business but before making further steps ahead, it is essential to ensure that their core business i.e. hygiene products is operating successfully (OECD, 2015). The main belief of the firm is to make innovative and quality products that are reasonably priced and easy for the customers to utilize. This viewpoint is to be considered by the firm in their new business as well. The existing customers of Vectair Holdings will support the firm by generating cash flow being required for the expansion process. Additionally, time factor is also very essential for a strategy to achieve success. Vectair Holding’s current business position as well as resources is capable enough to support the expansion process and thus, it is the right time to avail the growth opportunities from the market. Growth options being available for Vectair Holdings are described below:

  • Market penetration – Talking in reference with the market penetration strategy of Ansoff matrix, it simply means selling same products in the existing market and the main aim is to expand the market share. If this option will be selected by Vectair Holding than they need to pay attention on the ways by which they can increase loyalties from the customers. This can be done by making improvements in the order processes, making things available to the customers readily, extending the opening hours of the office and many more (Ansoff, 2007).
  • Market development – On the other hand, market development is defined as a strategy where existing products are being sold in new market. Vectair Holdings can ascertain their new market on the basis of demographic and geography. They can also carry out new campaign for marketing which utilizes varied channels of sales in order to target new customer base.
  • Product development – Another strategy that can be used by Vectair Holdings is the product development strategy, wherein new products as well as services are being provided to the existing customers or market. This strategy might prove as a great success for companies like Vectair Holdings who are engaged into different product lines and differentiated products. Through this, the company can also achieve competitive advantage over their competitors (Normah Mohd, 2007).
  • Diversification – The final strategy of Ansoff matrix is diversification. In this type of strategy entirely new products and services are being served to new market or customers. This strategy is very risky and can prove as a suicide cell if it is adopted by Vectair Holdings. This is because of the fact that the firm has no experience of the new market and product. However, this option can be a reasonable choice if the risk being involved is being compensated by the opportunities of high rate of return.
  • Partnership and joint ventures – Other than the product and market growth strategies, Vectair Holdings can also go for partnership and joint ventures. Through this, the firm will be able to take the advantage of varied paybacks such as numerous people with higher competencies, large base of customers, experience sharing and huge employees. In addition to this, it will also open a new market for the firm and will significantly improve the existing business of Vectair Holdings (Muragia, 2008).
  • Mergers and acquisitions – This is also another method for growth and expansion of business wherein a company is merged with another firm. Merger and acquisition will offer many benefits to Vectair Holdings, as they are one of the leading manufacturers of hygiene and they can take advantage of it.
  • Vertical and horizontal integration – Vertical integration refers to the acquiring of the company that operates in the production process of the industry. Through this, the firm can improve and strengthen its supply chain managements. Horizontal integration is a process in which firm acquires the company operating in the same industry. It will help in achieving economies of scale and will help in increasing market share (Assess your options for growth, 2018).

Consequently, it can be said that there are many growth options available to Vectair Holdings. However, considering the current business situation, product development is quite best strategy for the firm. They can sell new product in the existing market so that they can take the advantage of their loyal customer base. By conducting analysis of the current business environment and scenario, the UK food industry is growing at a tremendous pace. People of UK prefer to eat outside and ready to eat meals because of their busy schedule. However, with the rising problem related to health such as obesity, adulteration and other health issues, people are now becoming more health conscious (Lall, 2001). In addition to this, the government of UK has also imposed many taxes such as fat tax, to overcome the rising problem of obesity in the nation. Considering this fact in intellect, Vectair Holding is planning to offer organic food products which are healthy alternative to the products being available at the conventional grocery stores. They will open an organic food store and will target the existing customer base.

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TASK – 2

P3 Sources of capital – Their benefits and drawbacks

Financial planning is the foundation and significant essence for varied growth options. For the purpose of establishing the amount of investment, time when fund is needed and when these funds will be made available to the firm is dependent on sound financial planning. Additionally, there is also a need to forecast the cash flow as Vectair Holding has decided to expand the business; there expenditure will increase in comparison with revenue. Furthermore, it is also equally vital to ensure that existing business has surplus amount so that the expansion process can take place successfully and systematically (Kongmanila and Kimbara, 2011). It is a well-known fact that when any new business venture is established in the market, it will require time to bring prosperity or profits to business and thus, to cope up the activities and business functions during this phase there is a need of projection in relation with financing. For opening an organic food store, there will be a need of numerous funding and is being elaborated in the subsequent paragraph.

  • Venture capital – This is also one of the most important sources of fund being available to Vectair Holdings. In this method, investors capitalizes substantial amount of money in altercation for equity shares. Through this method, funds will be made available for the new business easily and they can get the best advice as well. But if this method is being adopted than the firm has to give some part of their new business to the investors (Myers and Majluf, 2004).
  • Crowd funding – With this method, small amount of capital is being accumulated by many people via online means such as social platforms. Capital is made available through social networks, friends and family members and can help Vectair Holdings in the expansion process conveniently. But to achieve the results, lot of dedication, time and efforts is being required.
  • Bank loan – Bank loan is one of the safest and best options for SMEs like Vectair Holdings who are expanding their operations. Details of rate interest, charges and other procedures related to availing loan should be understood prior seeking the loan. This source of funding is quite beneficial as it is very easy, quick and there is no control of bank in business. It has as only one disadvantage that, the loan has to repay irrespective of the business situation (Badrinath and et.al., 2007).
  • Angel investors – Angel investors are nothing but the wealthy investors who are given equity share of the business in return of their funds being given to the business. Through his source, the firm can also get expert advice along with funds. However, some sort of control is required to be given to these investors.

Therefore, from the above analysis it can be said that there are numerous options available to Vectair Holdings from which they can meet out their financial needs of the new business. Considering the present situation of the business, bank loan is being regarded as one of the best option for the company. It is the best sources of financing with easy process. Other than this, it safeguards on the asset if there is any default from payment by the owner. Since the present business of Vectair Holdings is quite prosperous and thus, they will not find any difficulty in regards with the repayment of loan (Mclaney and Atrill, 2006). However, interest rate on bank loan will be applied as per the agreement along with legal, commitment and insurance costs. Furthermore, the terms of loan will not exceed the usefulness of the asset. In addition to this, the company also has a facility of Bank overdraft to the tune of £2.0 million which have not been utilized by the firm till yet. This can also be used along with bank loan for fulfilling the short term financial need of the new business (Sirapolis, 2007).

TASK – 3

P4 Business plan for Vectair Holding’s new venture

Summary of the business plan

Talking in reference with the Vectair Holdings, the firm was quite successful in their current business of hygiene products both in the international and domestic market. There are many growth options available to Vectair Holdings. However, considering the current business situation, product development is quite best strategy for the firm. They can sell new product in the existing market so that they can take the advantage of their loyal customer base. Considering this fact in intellect, Vectair Holding is planning to offer organic food products by opening an organic store which is a healthy alternative to the products being available at the conventional grocery stores (Pinson, 2008). This store will capitalize on the growing demand in the community in regards with the local food store which will going to provide organic as well as locally grown produce, chemical and preservative free groceries, cruelty-free body care and eco-household products to the local people. The start-up cost of the new venture will be around £500000

Objectives of the business

The main objective of organic food store is to offer fresh, healthy and organic food products to the people of UK. They are focused towards providing food without artificial colors, additives and flavors. The store is also keen to support the organic farm that helps in keeping our earth as well as water pure.

Mission of organic food store

The main mission of the store is to offer highest quality natural and fresh food to the people and to serve them with their every possible means.

Start-up summary of the company

The start-up cost of the store will involve primarily of inventory and display equipments. The partners of the existing business will contribute £100000 each. In addition to this, the startup expenses of the firm will be £400000 which will significantly encompass legal, rent, insurance, advertising, cash reserve for hiring, display set-up, start-up inventory and many others.

Financial sources

Presently the company also has a facility of Bank overdraft to the tune of £2.0 million which have not been utilized by the firm so far. Therefore, the firm will make use of two major sources that is bank loan and owner’s fund (Pinson, 2008). The partner to the business will contribute £200000 in total. The remaining amount of £300000 will be arranged from bank loan.

Market analysis and segmentation

From the past few years the Hampshire area is being developed tremendously combined with the new families in the area will be perfect customer support for the new business. There are many stores in the area but the product line in which the Vectair Holding is unique and is not carried out by other super markets in town. The owners of the firm are of the belief that a local natural food store will be very competitive and will definitely provide customer product selection that will surely repeat the business. Talking in reference with the market segmentation, the store will focus on families, as more people are shifting because of the community environment and students who prefer to shop from natural store.

Projected cash flow

Cash flow statement

cash received

YEAR 1

YEAR 2

YEAR 3

Cash from operations

     

Sales

£200000

£320000

£450000

Cash from receivables

£250000

£345000

£390000

subtotal cash from operations

£450000

£665000

£840000

Additional cash received

     

Sales tax, borrowing, VAT, long term liabilities

0

0

0

Sales of other current asset

0

0

0

New investment received

£50000

0

0

Subtotal cash received

£500000

£665000

£840000

Expenditures

YEAR 1

YEAR 2

YEAR 3

Expenditures from operations

 

 

 

Cash spending

£200000

£220000

£250000

Bill payments

£50000

£150000

£185000

Subtotal cash spent

£250000

£370000

£435000

Net cash flow

£250000

£295000

£405000

TASK – 4

P5 Exit or succession options for Vectair Holdings

In this competitive business environment, it becomes sometimes difficult for the business to sustain in the market and thus, the owners as well as investors wants to take their investment out from the business. This is known as exit from the business. This can be performed by many ways and these are as follows:

  • Acquisition – This is being regarded as one of the most vital method wherein the other sound company purchases the firm through negotiation in the price. This method is best for SMEs as the seller can get more money if the firm has strategic value. However, sometimes it is very difficult to cop up the process, as new culture and processes takes place (Christman, 2015).
  • IPO (Initial public offering) – Initial public offering is also significant exit strategy for Vectair Holding if their business is not successful. Through this, the firm can sell their shares to institutional investors. The value of stock increases when the firm gets famous. But, this is very lengthy and time consuming process.
  • Liquidation – This simply closing the business of the concern. It is regarded as the simplest and easiest way to shut the operations. However, the return rate of investment in this method is very low.
  • Selling to friendly buyer – It is a method, wherein the ownership is transmitted to family members or friend of a neighboring business. It involves fewer chances of risk and fraud, as the buyer is known to seller. But sometimes business are takeover due to jealousy and can ruin the whole process (Akabueze, 2002).

There are many reasons behind the failure of a business such as wrong location selected, lack of planning, poor management, incorrect market chosen, over expansion and many more. However, sometimes business owners want to leave the business even if it is achieving greater heights and here succession planning plays an important role. Succession planning is nothing but a transfer of ownership from head to his successor either because of his retirement or death. It is quite challenging because of different processes and ways of performing business of the successor (Daron, 2003). The firm sells their current business through friendly buyer exit strategy who is their neighboring business partner.

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CONCLUSION

To conclude it can be said that for each and every business to success there is a need of growth orientation, abilities, skills and competencies. The report has significantly evaluated the growth options being available to Vectair Holdings and has planned strategically to achieve success in the same.

REFERENCES

Books and journals

Akabueze, B., 2002. Financing Small and Medium Enterprises (SMEs): the small and medium industries equity investment scheme (SMIEIS) option. Paper delivered at e-week 2002 seminar. Lagos, Nigeria: MUSON Centre.

Ansoff, H.I., 2007. Strategic Management Classic. Hampshire, UK: Palgrave Macmillan.

Badrinath and et.al., 2007. The SME and the Global Market Place: An Analysis of Competitiveness Constraints. Geneva: UNCTAD/ WTO International Trade Center.

Becchetti, L. and Trovato, G., 2002. The Determinants of Growth for Small and Medium Sized Firms: The Role of the Availability of External Finance. Small Business Economics, 19, pp.291-306.

Bergthaler K.Y.L. and Monahan, D., 2015. Tackling Small and Medium Sized Enterprise Problem Loans in Europe. Washington, DC: International Monetary Fund.

Berry, A. and Jervis, R., 2005. Accounting in Business context. 4thed. Hampshire: Cengage Learning.

Christman, P.G., 2015. The Master Plan Exit Strategy for Successful Business Owners: Discover a Strategic Planning Formula. BookBaby.

Daron, A., 2003. Root Causes: A historical approach to the role of institutions in economic development. Finance and Development, pp.27-30.

Ionica, O., 2012. Small and Medium Enterprises’ Access to Financing—A European Concern: Evidence from Romanian SME. International Business Research, 5(8), pp.47.

Katrak, H. and Strange, R., 2002. Introduction and overview. Small scale enterprises in developing and transition economies. Basingstoke (UK): Palgrave.

Kongmanila, X. and Kimbara, T., 2011. Corporate Financing and Performance of SMEs: The Moderating effects of Ownership Types and Management Styles. SAGE.

Lall, S., 2001. Competitiveness Indices and Developing Countries: An Evaluation of the Global Competitiveness Report. World Development, 29(9), pp.1501-1525.

Leora, K., 2006. The Role of Factoring for Financing Small and Medium Enterprises. Journal of Banking and Finance, 30(11), pp.3111-12.

Mclaney, E. and Atrill, P., 2006. Accounting and Finance for Non Specialist. 4thed. Prentice Hall.

Muragia, I., 2008. Factors that Determine Entrepreneurial Behaviour in Micro and Small Enterprises (MSEs) in Kenya. Nairobi: Scangraphics Ltd.

Myers, S.C. and Majluf, N.S., 2004. Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have. Journal of Financial Economics, 13, pp.187-221.

Normah Mohd, A., 2007. SMEs: Building Blocks for Economic Growth. Paper presented in National Statistics Conference 4-5 September 2006. Department of Statistics.

OECD. 2015. New Approaches to SME and Entrepreneurship Financing: Broadening the Range of Instruments. OECD: Paris.

Pinson, L., 2008. Anatomy of a Business Plan: A Step-by-step Guide to Building the Business and Securing Your Company's Future. aka associates.

Sirapolis, N.C., 2007. Small Business Management; A Guide to Entrepreneurship. Houghton Hifflin Company.

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