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8/7/2019 W.E.M group report 300408 (1)
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Group report for the years
2007-2010
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Introduction
During the formulating of the business plan W.E.M set the following key objectives to be
achieved in the simulation:
To have an unbeatable brand image associated with quality and innovation
To produce high quality and value for money cars
To keep our employees moral high
Produce enough cars to meet sales demand
Reduce product costs through economies of scale
To reduce the gearing ratio
To have a high credit rating
To break even in 13 months
To repay one quarter of the loan
To give dividends to our shareholders
This report will critically analyse and justify whether these objectives have been achievedboth in the market place and in financial terms. Also the steady and progressive performance
over the three years during the Eurocar simulation will be analyzed.
Introduction
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Market entry strategy
The Marketing performance during the first year was volatile due to little relevance between
the guiding statistical data provided and the actual simulation.
However, as a whole W.E.Ms marketing campaign was admirable. It was well budgeted and
the advertising expenses paid off. The brand value for Kexing was 110 in four of the markets,
Venus was 100 in two and Zeus was 82 in two (see Appendix 1). The amount of outstanding
orders and the volume of sales growth (see Appendix 2 and Fig.1.3) was a proof of the
popularity of the cars and a justification of the higher promotion expenditure than the
competitors (see Appendix 3).
W.E.Ms major divergence from the market entry strategy was introducing a third upper
medium model called Zeus that aimed expanding the product range and attracting new
market segments.
Fig. 1.1
Market Performance
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Target Market
As a result of an in-depth research about the countries which W.E.Ms lower
medium cars were going to yield the highest return, Germany and the UK were
selected as the main target markets. The success there was measured by
generating the highest sales compared to the other three countries (see
Appendix 4).
Price
In the business plan it was predicted that the prices charged for the models could
be increased proportionately to the advancement in the technical specifications.
Therefore, at first they were set in accordance to the equipment levels of the cars
as stated by the business plan. Despite this after the first two weeks it was
apparent that to stay competitive the prices had to be adapted to respond to
those of the competitors. This enabled us to cope quickly and effectively with the
market demand and the rivalry pressures. Pricing played a crucial role for
influencing the demand of the products. High pricing strategy was used to
decrease the demand for Kexing when the outstanding orders became too
overwhelming for the production capacity to meet the quantity demanded.
For example the latest price of Kexing was on average 17,400, 12,100 and
23,133 for Venus and Zeus respectively, which was entirely different compared
to the original figures (Fig. 1.2.).
Fig 1.2
(Initial models
price levels)
Type Car Model Prices From*
Lower Medium Kexing 12,900
Super Mini Venus 9,000-9,200
Upper Medium Zeus 15,995
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SalesThe business plans sales forecast was entirely different from the actual amount
achieved in the simulation. This increase was due to adoption of a situational
managing method that aimed at responding to the changing environment
conditions. The market demand and customers requirements were therefore met
in terms of quality and technical specifications. Consequently, even a third car
was launched, which was not part of the original plan. This strategy and its
outcomes made us much more competitive and generated higher sales.
Fig 1.3
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Manufacturing Strategy
W.E.Ms major divergence from the operations plan was in four areas and, which turned to be crucial
for the company success. Firstly the amount of the demand was underestimated, which meant that
within certain times of the year the outstanding orders were more than 25,000 cars (see Appendix 2).
To react to this the production targets were increased. Secondly, a second factory was opened sooner
than anticipated. This was due to high demand for WEMs product, which could not be met with the
capacity of one factory only. Thirdly, once the first wave of outstanding orders was controlled, it
became evident that the production capabilities needed to be expanded in order not to lose potential
customers and sales. Consequently, it was decided to buy a third factory. Finally, towards the end of
the third year when the limit of three factories had been reached the production of Venus was
gradually decreased in favour of the other two more profitable and popular models (diagram 1) as
Venus had stock left over and Kexing had outstanding orders (see Appendix 5).
Human Resources
It has always been a W.E.M policy to take good care of its employees. 13.33% pay rise was given
from the years 2007 to 2010. This was not part of the plan, but it was considered this was a necessary
expenditure, for keeping the satisfaction with the workplace within required limits as W.E.M values its
employees as its most valuable asset. The planned bonuses and training for staff were increased over
the years in order to maintain the quality level, which tended to lessen at times.
Research and Development
To be more competitive and to provide the customers with a car that was innovative and meet their
needs, more was invested in R&D than predicted.
Budgeted R&D
Build quality 10,000,000
Diesel 3,000,000
Operations
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The financial decisions within WEM were tailored to accurately reflect the actions of
the operations and marketing departments. Despite we were directed financially by the
initial business plan there were divergences from it as our strategy was to constantly
analyze and benchmark with the rivals actions and the underlying environmentconditions.
Anticipating that the share price and therefore the credit rating would fall initially due
to loss after a heavy capital expenditure the maximum 1billion loan was taken at the
beginning instead of the planned two loans of 300m and 625m throughout the first
and second year respectively. This decision was also provoked by the 1% lower
inflation and consequently lower loan interest rate of 7.4%. Instead of depositing the
excess money in a bank soon after the beginning they were invested in the business in
order to fully exploit the larger than predicted market demand and capitalize fromreduced fixed costs per unit.
Even though the gearing ratio reached 61% initially, which at first might have implied
risky shareholders investments, the concerns soon disappeared when the actual sales
outweighed the estimated by 80% to 150%. The turnover figures throughout the years
climbed from 2.2 to 4.8 billion. Correspondingly the PAT to turnover ratio improved
from 4% to 14% and 22% in the three years respectively. As a result the absolute profit
at the end reached 1b, which was around seven times higher than the estimated. A
proof of the efficiency in extracting as much as possible profit from the investments isshown by the ROCE indicator that climbed to as high as 60% in the third year and was
three times higher than the predicted (Appendix 6). In this relation the EPS multiplied
several times to reach 215p per share during the third year.
This was one of the most significant factors for the increase in the share price.
Moreover, the gradually increasing PE ratio of WEM (Appendix 7) reveals it rose at a
much faster rate than the earnings to reach its highest level among all competitors of
almost 39 pounds (Appendix 8).
Even though the debtors conversion cycle was intentionally longer than the creditors
one by one week and required an additional working capital of around 100million the
high acid test ratio that fluctuated between 3 and 4 is a proof of a precisely balanced and
timed cash inflows and outflows (appendix 9).
All the factors mentioned above cause the reduction of the time for reaching break-even
point from 13 to 10.5 months without being overdrawn. Also large repayments of the
debt were made and the in the second year the gearing was decreased to 40%, while the
next year the loan was fully repaid. This in terms led to giving a dividend of 40p per
share that was five times higher than the planned amount.
Financial Performance
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The business plan was the foundation and blueprints of what we wanted to achieve and
helped us focus on our goals. However, we did not follow it step by step because we had tobe flexible in our approach to the game. We had to react to the market conditions and
benchmark our actions with those of the competitors in order to stay competitive. Further to
this we had take decisions instantaneously to solve problems of unexpected fluctuations in
demand and the quality. Therefore the business plan was a good outline of where to begin
and it was useful in helping us focus on our goals.
Therefore, our excellent simultaneous decision-making, and harmony within the
team lead by Alieu the managing director took us to become the leading car
manufacturing company of the tutorial group.
Appendix 1(Brand Value and Promotions cost)
Conclusion
Appendix
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Appendix 2(Outstanding Orders)
Appendix 3(Advertising cost)
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Appendix 4(Market share per country)
Appendix 5(Producer Stocks)
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Appendix 6
Appendix 7
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Appendix 8
Appendix 9
Period 2007 2008 2009
Financial Indicators predicted Actual predicted Actual predicted Actual
Gearing ratio 38.00% 61% 65% 40% 59% 0%
ROCE 2% 12% 19% 46% 21% 60%
acid test N/A 3.17 N/A 3.83 N/A 2.78
PAT -12.8 million 83.4 million 129 million 681million 148.5 million 1075 million
sales 1.1 billion 2.2 billion 2.2 billion 3.4 billion 2.4 billion 4.8 billion
eps 16.7p 96p 215p
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Appendix 10
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